Activist investor calls for drinks maker C&C to be sold

Demand comes after company’s CEO stepped down and Magners unit took writedown

Bulmers cider is one of C&C's key brands. Photograph: Bryan O’Brien

Drinks maker C&C is facing a demand from an activist investor to put itself up for sale weeks after its chief executive quit and the company had to restate three years of results.

New York hedge fund Engine Capital said on Monday it had built up a stake of just under 5 per cent in the Dublin-based firm. In an open letter to the C&C board, it urged the company to explore a sale, which it claimed could deliver a 58 per cent premium to the current shareprice.

“C&C has been a perennial underperformer and today is deeply misunderstood and undervalued by the market because of a combination of structural and self-inflicted problems,” Engine Capital managing partner Arnaud Ajdler wrote in the letter, which the fund published on its website. “We believe C&C makes for an attractive acquisition target given the quality of its assets,” he added.

C&C, which counts Bulmers cider in Ireland, “noted” the letter, it said in a statement. “Operationally, the key priority is to deliver the substantial actions currently being progressed at pace throughout the business, driving forward both brand and distribution revenue, improving margin, while returning up to €150 million by the end of FY27, it said. “The underlying performance of the business has been in line with expectations, and progress has been made in returning capital to shareholders.” it added.

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The move piles pressure on the company, which has already been mooted as a potential takeover target in recent weeks. Chief executive Patrick McMahon stepped down after barely a year with immediate effect earlier this month after the firm had to restate three years of earnings amid an accounting issue that resulted in a net loss of €5 million. The company also took a €150 million goodwill writedown, driven mainly by its Magners cider unit. Chairman Ralph Findlay has stepped in to run the business for the next 12 to 18 months while a permanent CEO is found. If Findlay was to stay in place for the full year and half, the company would still be on its fourth boss in less than five years.

C&C shares rose 1.5 per cent by midafternoon trading in London. The shares are down about 31 per cent over the past year.

Given what it called C&C’s “small size and complexity of its portfolio,” Engine believes “C&C makes for a poor public company and is unlikely to ever be properly valued in its current form,” Mr Ajdler wrote. “In our view, a sale could deliver returns far superior to the stand-alone value of the company,” he added.

The fund wants C&C to add directors with experience mergers and acquisitions as well as capital markets, in part to help facilitate a “strategic review” to “monetise” the company.

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“We suspect the optimal strategic acquirer of C&C’s assets is a scaled company with a global, established brand that could optimise marketing expenses, benefit from U.K. manufacturing capabilities, reduce general and administrative expenses, benefit from procurement savings, and leverage C&C’s leading distribution businesses to accelerate the growth of its own branded and higher margin products,” Ajdler wrote. Private equity could also be a potential buyer given the businesses “strong free cash flow generation.” – Bloomberg News first reported Engine had written to C&C.

Peter Flanagan

Peter Flanagan

Peter Flanagan is an Assistant Business Editor at The Irish Times