AIB to advise Guinness on C&C sell-off

Guinness Ireland has brought in AIB Corporate Finance to advise it on the sale of all or part of its 49

Guinness Ireland has brought in AIB Corporate Finance to advise it on the sale of all or part of its 49.6 stake in drinks group Cantrell & Cochrane (C&C). The sale has been forced on Guinness by the European Commission as one of the conditions for the approval of Guinness's merger with Grand Metropolitan.

Allied Domecq, which owns 50.4 per cent of C&C, has first option to buy the Guinness stake at a valuation that will be decided by accountants KPMG. Allied Domecq will have 28 days from the date of the KPMG valuation expected within a matter of days to decide whether to buy the Guinness stake at that price. If it declines to do so, then Guinness has the right to offer its minority stake for sale elsewhere.

AIB corporate finance managing director, Mr John O'Donnell, declined to speculate on the likely valuation on C&C, but industry sources believe that KPMG will value C&C at between £600 million and £650 million, and the Guinness stake at between £300 million and £325 million. It is thought, however, that Guinness hopes for around £350 million for its entire 49.6 per cent stake.

"C&C is a very attractive company, it has shown strong year-on-year growth, has quality brands, a strong balance sheet and a strong market share. The company has the capacity to grow strongly," said Mr O'Donnell.

READ MORE

Guinness has until the end of the year to reduce its stake in C&C to a maximum of 10 per cent, although industry sources believe that the entire minority stake will be sold - the only questions being the identity of the buyer and the mechanism of the sale. C&C management is thought to favour a flotation of the drinks group, but an immediate flotation is seen as unlikely.

If Allied Domecq declines to buy the Guinness stake at the KPMG valuation, then it can negotiate with Guinness on an alternative price. The C&C business, which takes in a whole variety of alcoholic and non-alcoholic drinks ranging from soft drinks like Club Orange to mineral water like Ballygowan to cider, liqueurs and whiskey like Tullamore Dew.

In line with the pattern in the international drinks industry of focusing on a comparatively small number of global brands, Allied Domecq has made it clear that developing brands like Beefeater and Teachers will be its priority if it is to compete with the giants of the industry like Diageo, the product of the GuinnessGrand Met merger. It is difficult to see where C&C fits in that global strategy, even though the group is hugely profitable more than £52 million last year.

Analysts believe that investors would react negatively to Allied Domecq buying out the Guinness stake for more than £300 million - unless it buys out the minority Guinness shares with the intention of selling the then wholly-owned C&C at later date, either through a trade sale or a flotation.

Alternatively, Allied Domecq could opt to allow a trade buyer acquire the Guinness stake with the intention of buying out Allied Domecq at a later date. Industry sources believe, however, that the more likely option is for Allied Domecq to take full control of C&C as a prelude for a disposal.

A trade buyer at that stage could be any of a number of international drinks companies, and Pernod Ricard owners of Irish Distillers has been mentioned as one possible interested party. International brewing groups with Irish interests like Heineken have also been mentioned as potential buyers if and when a wholly-owned C&C comes on the market.

The alternative to a trade sale is a flotation of C&C, and this would be very definitely the preferred option for Irish institutional investors, who have consistently bemoaned the shortage of quality investment opportunities.