Carlsberg may claim to be “probably the best beer in the world”, but apparently the glass is only half full. If its strategy to “go beyond beer” comes to fruition, it could soon become one of Britain’s biggest soft drinks groups too.
At first glance, the Danish brewer’s bold (and so far rejected) £3.1 billion bid for Britvic seems a bit left-field. Do varieties like Fruit Shoot, Tango and R White’s lemonade really sit comfortably next to a huge beer cellar with Mythos, Kronenbourg and of course the Carlsberg range? The answer appears to be ‘yes’.
With the younger generation in particular looking for alternatives to alcoholic drinks, every major brewer is now producing alcohol-free versions of their core brands, from Guinness to Heineken, from Corona to Carlsberg itself. Long gone are the days when such varieties were nearly undrinkable, with heavy investment resulting in the development of increasingly tasty brews. And as a growing portion of the population shuns alcohol, mergers and acquisitions that merge brewers and soft drink makers could become increasingly common.
Carlsberg is no stranger to the low and no alcohol market. It is already a Pepsi bottler in Norway, Sweden, Switzerland, Cambodia and Laos and it is considered likely that PepsiCo will agree to add Britain to the pot. In 2020, a new 20-year UK bottling agreement was signed that runs until 2040, although the agreements can be terminated upon a change of control. The extensive range of drinks besides beer includes Imsdal water in Norway, Ramlosa in Sweden and Kildevaeld in Denmark, Carlsberg Sport in Denmark and Xixia soft drinks in China. Somewhat confusingly, Carlsberg is not only a Pepsi bottler, but also the bottler of Coca-Cola in Denmark and Finland.
On the other side of the table not yet ready to negotiate, Britvic’s ties to the brewing industry go back much further than most people think. It was once owned by a consortium of brewers led by the old Allied-Lyons group. The Allied Breweries company was merged with Carlsberg in 1992 to form Carlsberg-Tetley. Such circularity only adds to the interest.
What Carlsberg wants to create is a broader ‘multi-beverage platform’ in Britain, where it remains in fourth place in the brewery rankings in terms of market share behind Heineken, AB InBev and Molson Coors. Despite signing a brewing joint venture in Britain with Marston’s in 2020, creating the Carlsberg Marston’s Brewing Company, it remains a weak No. 4.
Trevor Stirling, drinks analyst at Bernstein, believes there would be operational synergies between Carlsberg Marston’s and Britvic, as well as between Kronenbourg and Britvic in France. There would also be some purchasing savings, while Carlsberg could reduce costs by removing the overheads associated with running a separate listed company.
Although considered a British company, Britvic has become increasingly international under the leadership of Simon Litherland, its CEO since 2013, with 32 percent of sales and 25 percent of profits coming from overseas markets. In addition to France, the company has branches in Ireland and Brazil and exports to approximately 100 countries.
Great Britain accounts for 11 percent of Carlsberg’s turnover. If it succeeds in securing Britvic, that would increase to around 26 percent.
In February, Carlsberg upgraded its revenue expectations, partly based on its continued expansion beyond beer to create a more balanced portfolio of beer, cider and soft drinks. One analyst pointed out that many aspects of brewing apply equally to soft drink production, including bottling, canning and distribution.
Britvic’s brands include J2O, the fruit juice-based drink
BRITISH
While most CEOs faced with a takeover are reluctant to hand over the keys, few will complain about the size of their exit packages. Litherland, 60, was paid a total of £2.9 million last year, including bonuses. Basic salary has risen to £720,000 this year and the Britvic boss, from Zimbabwe, is found to own shares worth a total of 487 per cent of salary.
Some observers argue that the bid for a soft drinks company is an admission of Carlsberg’s failure in its attempts to close the gap with AB InBev and Heineken, the two largest brewers in the world and in the United Kingdom. However, one analyst said the Carlsberg Foundation had made clear its ambition to support the company’s expansion plans and that further corporate action was therefore likely. Although the foundation only has a 30 percent stake in Carlsberg, it retains control of the company thanks to the 76 percent of the votes these shares represent in the demerged ownership.
JC Jacobsen founded the company in 1847 by establishing a brewery on the outskirts of Copenhagen, naming the factory after his son Carl Jacobsen. He founded the foundation in 1876.
Carlsberg, which first exported its beer to Britain in 1868, rejected suggestions that Britvic was somehow an admission of defeat on other fronts. “Carlsberg believes that the potential transaction would enable the company to capture attractive long-term growth opportunities from Britvic’s extensive portfolio of leading brands in an attractive segment of the drinks market where Carlsberg already has a strong track record,” the company said.
The last time Britvic was involved in such a significant deal was more than a decade ago, when the Robinsons maker agreed to a £2 billion, all-on-paper merger with AG Barr, the Scottish drinks group behind Irn-Bru. The deal was put on hold pending a Competition Commission investigation, but by the time the marriage had received the commission’s blessing, Britvic decided no more deal was necessary. Litherland, who would have fallen victim to the post-merger cost cuts, was instead promoted to the top job.
The latest proposal alarmed many City observers, with most of the recent noise around the sector coming from Fever-Tree, the mixer group with the go-go share price. There have been rumors in recent months that spirits makers such as Diageo and Pernod Ricard may have taken control of Fever-Tree following a sharp fall in its share price, but the 39p, or 3.8 per cent, is bouncing back in its shares today. £10.62 could indicate further activity in the soft drinks sector.