E-Malt.com News article: UK: Heineken makes a strategic $646 mln pub acquisition

Heineken NV, the world’s third-biggest brewer by volume, acquired 918 U.K. pubs it manages for Royal Bank of Scotland Group Plc in a 412 million-pound ($646 million) deal that creates one of Britain’s biggest pub owners, Bloomberg reported on December, 2.

The purchase of the Galaxy Pub Estate will give Heineken ownership of 1,380 pubs when added to the 462 outlets already controlled by the Dutch brewer, the Amsterdam-based company said in a statement. Heineken’s Scottish & Newcastle unit has managed the Galaxy pubs on behalf of RBS since 1999.

The acquisition is a “significant vote of confidence” in the U.K. pub industry, Stefan Orlowski, Heineken’s U.K. managing director, said in the statement. U.K. pub profits have been hit by a slump in consumer spending, a smoking ban and discounted beer in supermarkets. Outlets are closing at the rate of 25 per week, the British Beer & Pub Association said in March.

Heineken, which is struggling with declining beer sales in Western Europe, said it will take over the largely freehold pub business on a “cash-and-debt-free basis.” In addition to the purchase price, 10 million pounds has been paid to settle accrued amounts owed under a management agreement between RBS and Heineken, the brewer said, adding that the acquisition will result in a one-time pretax expense of 28 million pounds.

“The valuation is difficult to assess as a result of too many loose ends, but the immediate one-off costs suggest that this has not been a bargain,” Richard Withagen, an analyst at SNS Securities in Amsterdam, said in an e-mailed note. “Strategically, the acquisition absolutely makes sense.”

Heineken will fund the purchase with existing cash and credit facilities, according to John-Paul Schuirink, a spokesman for the brewer. The company said May 5 it obtained a 2 billion- euro five-year credit line to refinance and back acquisitions.

RBS, Britain’s biggest government-owned lender has been selling assets including bank branches and its credit-card payment processing unit. The Edinburgh-based bank also has to sell its insurance operations, which includes Direct Line and Churchill, by 2013 to comply with a European Union ruling following its receipt of state aid.

The sale of the Galaxy estate is “in line with the asset reduction element of RBS’ non-core strategic plan,” the bank said in a statement today. “The proceeds received will reduce further the overall funded assets in non-core.” RBS had reduced its non-core businesses to 105 billion pounds as of Sept. 30, since it created the non-core division in 2009.

Galaxy had earnings before interest, tax, depreciation and amortization of 45 million pounds in the year ended Dec. 31 and a gross asset value of 406 million pounds. The purchase will be “earnings accretive” from December, Heineken said.

“Our ownership of this estate strengthens our leading position in the U.K. beer and cider market, particularly in the valuable on-trade channel,” Didier Debrosse, Heineken’s regional president for Western Europe, said in the statement.

Heineken rose 1.6 percent to 35.32 euros as of 10 a.m. in Amsterdam trading. RBS gained 4.2 percent to 21.42 pence.

RBS Corporate Finance and Sapient Corporate Finance advised the bank on the transaction.


02 December, 2011