The pub industry has struggled hugely in recent years, with campaign groups such as CAMRA warning that the rate of closures remains high even in the aftermath of the recession. However, there are now signs beginning to emerge that a turnaround is in progress, one of which is the acquisition of the Spirit Pub Company by Greene King.
Spirit, which owns brands such as Chef & Brewer – and Greene King, owner of the popular Hungry Horse chain – have agreed to a deal which will see the latter take over Spirit’s estate of around 1,000 pubs for £773.6 million. This means that Greene King will soon operate 3,000 pubs in the UK, becoming one of the largest groups in the pub industry.
Although Irish drinks firm C&C Group had recently expressed an interest in acquiring Spirit, and even submitted an offer to rival Greene King’s, executives at Spirit made the decision to strike a deal with Greene King after the group submitted a revised offer.
The payment will be made in a mixture of cash and shares, meaning that shareholders are likely to look favourably upon the deal – a good thing for Greene King, as the deal requires shareholder approval before it can become finalised.
Shore Capital analyst Greg Johnson believes Greene King has made a “sensible move” in acquiring the Spirit group.
He says; “The structure of the deal leaves the enlarged balance sheet well financed and able to deliver strong cash generation.”
It is believed that this acquisition was a highly important part of Greene King’s current strategy, as it has recently expressed a desire to focus primarily on restaurants and pubs capable of serving food. This is due to the ongoing issues facing the pub industry, which has seen pubs offering meals in a family friendly atmosphere advance well ahead of the traditional local bar.
This is not the only transaction Greene King has been involved in this year, as in May it offloaded 275 tenanted and leased properties to rival Hawthorne Leisure. Industry experts believe this was partly a move based on its food-based strategy, but also due to the fact that preliminary annual profits released in July noted a 5 per cent drop from the previous year.
Greene King now believes that, should the deal gain shareholders’ approval, it will allow the group to achieve cost synergies of around £30 million per year. Although this will necessitate a one-off payment of £25 million, the group believes 40 per cent of savings will be realised in the 2015/2016 financial year, with 2016/2017 bringing savings of 80 per cent and 2017/2018 98 per cent.
Assuming the plans meet with shareholders’ approval, it is expected that the two pub groups will combine within the first half of 2015.
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