Bass buys Carlsberg-Tetley for pounds 200m
Attention turns to OFT approval as Bass finally announces deal that will make it Britain's largest brewer with one-third of the market
Monday 26 August 1996
The unconditional deal must now wait for the green light from the Office of Fair Trading, which has to decide whether to refer the acquisition to the Monopolies and Mergers Commission in light of the 35 per cent share of the UK brewing market it will secure for Bass. Last year, Scottish & Newcastle was given the nod, in exchange for a handful of minor concessions, for its takeover of Courage, which gave it a 31 per cent market share.
Sir Ian Prosser, chairman of Bass, who has maintained a no-comment policy throughout the 15-month-long negotiations with Allied and Carlsberg, said yesterday: "I am delighted we have been able to agree this merger. Brewers continue to face a whole range of competitive pressures on wholesale volumes, prices and margins, and it is these pressures that are forcing consolidation."
He said Bass had already had discussions with the OFT on the proposed transaction. "Now it is in the public domain, we will address any specific concerns the regulatory authorities may have surrounding the transaction."
Tony Hales, chief executive of Allied Domecq, described the deal as "the culmination of a two-year disposal programme of non-core businesses which will enable us to concentrate fully on the development of our spirits and retailing businesses".
Allied will take a pounds 320m charge against profits to cover the full cost of exiting brewing, including the ongoing price of buying beer from Carlsberg- Tetley at well above the current market price. As a result of taking upfront the cost of that contract, which expires at the end of 1997, the deal is expected to be earnings enhancing for Allied from the 1996/97 financial year, which begins next week.
As expected, the deal sees Bass acquiring Allied's share in Carlsberg- Tetley for pounds 200m in cash. In addition, Carlsberg will inject its half of the venture into Bass's brewing arm, Bass Brewers, and pay a further pounds 20m in exchange for a 20 per cent stake in all of the combined operations except Bass's Irish and export businesses.
Together with Whitbread, which has 14 per cent of the market, Britain's three biggest brewers will now account for four out of every five pints brewed in Britain. The latest move in the consolidation of British brewing was criticised by Camra, the organisation that champions real, cask-conditioned ales: "The proposed Bass-Tetley merger marks the beginning of the end for choice and diversity for British beer drinkers. We face the Americanisation of beer with a handful of brands dominating the pub trade."
A hundred years ago there were 1,500 brewery companies in Britain but that number has fallen to only a few dozen, including regional players who are increasingly being squeezed by the nationals. Only seven years ago, the industry referred to its "Big Six" - Bass, GrandMet, Scottish & Newcastle, Whitbread, Allied-Lyons and Courage. Now only half as many control the industry.
Bass said yesterday it would continue supplying Allied Domecq's retail pub estate with beer until the current contract expires in December 1997. The advantageous terms of the contract are understood to be the only reason the struggling Carlsberg-Tetley operation made a pounds 52m profit last year.
The profit, which was struck from the venture's net assets of pounds 637m, compared with the pounds 113m operating profit made by the parts of Bass Brewers being thrown into the merger pot in the year to September 1995 from net assets of pounds 890m. Bass said yesterday that the deal would be earnings enhancing, before exceptional charges, in the year to September 1997.
Bass added that it expects to secure annual cost savings of pounds 90m, including savings already announced by Carlsberg-Tetley, with a one-off cost, to be taken against profits, of pounds 75m.
Bass confirmed that, subject to there being no regulatory requirement to reduce its level of trade, it planned to continue operating all of the combined group's breweries with the exception of one site at Warrington that Carlsberg-Tetley had indicated it planned to close.
Bass will receive 50 per cent of profits earned by Carlsberg-Tetley until the merger is complete. As expected, it has secured an escape clause whereby if it is unhappy with any regulatory demands it can sell to Carlsberg the Allied share of the venture for pounds 110m and would receive pounds 30m in compensation from Allied.
Carling Black Label
Caffrey's Irish Ale
Carlsberg Special Brew
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