C&C chief sees little chance of Pabst triggering US purchase option

C&C Group's chief executive, Stephen Glancey, has said he sees little chance of California-based Pabst Brewing Company exercising an option to buy the Irish group's US cider brands next year, following a slump in sales and the value of the assets.

Pabst, the largest privately held brewer in the US, entered a deal in March last year to market and sell C&C’s cider brands in that market. As part of that deal, Pabst has the option to acquire the US assets from next year for a minimum consideration of $150 million (€131.6 million).

Speaking to The Irish Times after C&C's annual general meeting in Dublin this week, Mr Glancey said he would be "surprised" if Pabst triggered the option next year.

“I can’t judge where they sit, but they would have anticipated the business would have performed better than it’s been doing,” Mr Glancey said. “But the category’s in pretty sharp decline in the US.”

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C&C, which entered the US market in 2012 with the €235 million purchase of Vermont Hard Cider and followed up with further investment, took a €150 million impairment charge against the assets in 2015, followed up by a further €129 million write-down in its last financial year, to the end of February.

The latest charge occurred against the backdrop of a 33 per cent slump in North American revenues to €24.5 million and the Vermont business now has a carrying value of €45 million on C&C’s books.

Cider market

C&C's chairman, Brian Stewart, admitted amid heavy criticism from investors at the group's agm on Thursday that "unequivocally" the US has been a "major disappointment" to the company. Over the long term, Mr Glancey said he believes that the outlook for the cider market in the US is positive.

Meanwhile, Mr Glancey said that two investment firms, the Southeastern Concentrated Value Fund and Brandes, which each added to their positions over the past year and own 18 per cent and 10 per cent of C&C respectively, are supportive of the company’s strategy.

“The strategy is very clear: the long-term view is cider is going to grow internationally and has been doing so for the last 20 years”.

He said that the company’s Magners cider brand is the fifth cider brand in the world and sells in “every Irish bar in America and Asia”.

“At the heart of the business is Ireland and the UK, which generates cash. You’re not getting growth from those markets. People aren’t drinking more,” he said.

UK market

Shares in C&C fell as much as 4 per cent over the past two days, pushing the market value of the company to about €950 million, as the company highlighted in a first-quarter trading update that further sterling weakness following the UK general election will, if sustained, weigh on its full-year results.

"At divisional level, Scotland is showing momentum in customer recruitment in the branded and wholesale channels, with Tennents gaining share in a flat market, while premium and craft brands have had strong quarter," said Darren McKinley, an analyst with Merrion Capital. "In contrast, however, in Ireland, the overall trade has been subdued. Bulmers has ceded more draught distribution under intense competition."

Heineken’s Orchard Thieves cider brand has been the main source of the competition in recent years in Ireland.