Rain takes fizz out of C&C's share price

Business Opinion: As they look out the windows at the rain falling on west Dublin, Maurice Pratt and his colleagues at C&C must be wondering if they have blown it.

Two months ago, things were shaping up very nicely for the makers of Bulmers and Magners. Cider production was being ramped up in anticipation of the continued success of Magners in the UK, while non-core and underperforming assets were bring disposed of.

The company enjoyed the confidence of the markets and there was much talk - even a sense of inevitability - about the sale of C&C to some large drinks group and the resulting pay day for Pratt and his team.

Then comes the worst summer in years and everything changes. Not only have sales slumped, but perhaps more significantly, the fragility of their business model was badly exposed.

C&C have been quick to blame the weather for the slump in sales and without a doubt, it is a big factor. But the other issue is the resurgence in competition from other cider companies.

The final piece of the jigsaw is whether or not cider's new found fashionability in the UK, is just that, a fashion and not a long-term trend.

All will be a bit clearer come the end of the summer. In the meantime, we should not have too much sympathy for Pratt and C&C. There are plenty of other businesses that have to grapple with the impact of the weather on their sales, ice cream makers being the most obvious. While ice cream companies have no doubt invested heavily in ways to match production to the weather, it is also true that there are very few standalone ice cream companies of any scale. Most are part of some larger food group.

There was much comment last week on the differing fortunes of C&C and SABMiller, one of C&C's potential suitors, which reported quarterly figures on the same day C&C issued its profit warning. The point was simple: C&C has become a one-trick pony and its ability to deal with the unpredictable is limited, while SABMiller was able to offset the impact of the poor weather in northern Europe with better sales in sun-baked southern Europe.

There is no such hedge in C&C's business and neither is there any easy way to bring one about. The obvious conclusion is that the company belongs as part of larger group and the sooner it becomes so, the better.

Unfortunately, it now looks like this is going to happen at a price that reflects the significant weather-related volatility in sales, the issues over competition and the longevity of cider's new-found popularity. Two months ago, there would have been a hefty premium for the hype surrounding Magners.

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Someone else who must be wondering if he has blown it is Phillip Lynch over at One51. The revelation that the Lynch-led Moonduster consortium considered the sale of their stake in ICG has somewhat undermined their position in the game of bluff being played at the ferry company.

It adds credence to suggestions that Moonduster are starting to feel the strain some four months into the process. Much of their stake is held through contracts for difference and the interest bill is clocking up.

It is tempting then to view Moonduster's appeal to the independent directors to break the stalemate by holding an auction as the last desperate throw of the dice, having failed to find an exit through the sale of their stake to property Liam Carroll, the third player in the drama.

The proposal is not without merit, but seems unlikely to fly. As Moonduster point out, it was used to resolve a similar, but not very, situation at Corus.

The problem is that having sensed weakness in the Moonduster camp, the Eamonn Rothwell-led Aella consortium are unlikely to agree to an auction at this stage and it is not clear that the independent directors can - or even want to - try to force such an outcome. Equally, it is unclear as whether the Takeover Panel could bring about an auction.

The decision by the independent directors to once again extend the increasingly meaningless deadline once more appears to favour Aella. It keeps the pressure up on Moonduster and allows Aella time to follow up on the hints being dropped by Liam Carroll that he might be amenable to a deal which would see him acquire the company's property interest in Dublin Port, while leaving Aella with the ferry business.

Interestingly, given Rothwell's repeated assertion that there is no property play in the business, he should have no problem with such an arrangement. Brokering such a deal is however easier said than done and a three-way stalemate between Aella, Moonduster and Carroll cannot be discounted. That would make for an interesting auction.