A stock market flotation of Cantrell & Cochrane within the next year now seems likely, following Allied Domecq's acquisition of Diageo's 49.6 per cent stake in the Irish drinks group for around £270 million.
A spokesman for Allied Domecq would not reveal the cost of the acquisition, but it is understood to be close to the £270 million price reported in The Irish Times last month. This suggests Diageo has agreed to sell its entire 49.6 per cent stake in C&C at the valuation put on that stake by KPMG, rather than holding out for a higher price for the 9.9 per cent stake it could have retained and still have complied with EU and Competition Authority requirements.
Publicly, all Allied Domecq has said is that it will review its options for C&C over the next few months. These options include retaining C&C as a wholly-owned subsidiary, selling the company to a trade buyer or floating all or part of the company on the Dublin and London stock markets.
Informed sources have indicated that, given its expressed preference for focusing on a small number of global drinks brands such as Teachers and Beefeater, Allied Domecq is unlikely to retain C&C as a subsidiary. C&C is highly profitable and cash-generative but its interests extend from soft drinks to cider, liqueurs and whiskey and do not fit in with Allied Domecq's global brandbased strategy.
Industry sources also stated it would also be very difficult to find a trade buyer for C&C, given the current penchant in the trade for international brands. A market flotation of the Irish drinks group would allow Allied Domecq to keep the City happy and also realise a hefty profit on the purchase of the Diageo stake.
The £270 million paid for Diageo's 49.6 per cent stake in C&C does not automatically mean that the company is worth more than £540 million. The KPMG valuation which was the basis of the sale included a hefty discount to reflect the minority nature of the Diageo shareholding, and the absence of an alternative to Allied Domecq as a purchaser for the shareholding.
Given its level of profits more than £52 million last year and the £65 million on its balance sheet, market sources believe that in a flotation, C&C could attract a valuation of at least £700 million. If the flotation decision is taken, one question is the stake that Allied Domecq might retain in the publicly-quoted C&C. It is unclear whether it would retain the 50.4 per cent stake it had prior to the deal with Diageo, or if it would sell off most or all of its holding. While Guinness professes to be happy with the £270 million proceeds of the sale, industry sources believe that Allied Domecq seems to have got very much the better of the deal, paying £270 million for almost half of a company which could be worth in excess of £700 million in a flotation.
The sale, however, does remove one obstacle to Guinness Ireland's proposed £33 million acquisition of the outstanding 70 per cent of United Beverages.
