C&C Group caused a stir last week when news broke of its potentially transformative bid for Spirit Pub Company – its first half results this morning were a source of considerably less excitement.

Investec wrote that the Spirit bid was “a potential game changer” and its success would mark a “a step change in business focus” for the firm.

The broker was less impressed with current trading as first half operating profit dipped 2.7%, noting that the numbers were “behind expectations” and that it “will be probably pulling back earnings per share numbers by 2% to 3% driven by underperformance in the US”.

C&C described US trading as “disappointing”, but it is the group’s struggles in England & Wales that are behind its efforts to move into the pub business with its pursuit of Spirit.

Its core Scottish and Irish business seems solid enough (driving the vast majority of profit), but C&C is struggling with the “highly competitive” environment in England & Wales and its “challenging” cider market.

As such, the firm is reviewing the structure of its business in England & Wales with a particular focus on improving its route-to-market capability – hence the Spirit bid.

C&C Group today cited UK takeover rules for not expanding on its initial comments accompanying the bid on Thursday evening – meaning there are still more questions than answers at the present time.

Investec said of the bid: “A successful approach for Spirit would be a step change for C&C, moving it away from a pure Irish/Scottish focussed beverage play to a pub and hospitality business with strength in London and South East England. It is, however, a business that senior management is familiar with and it could provide a strengthened route to market for C&C’s brands as well as a platform for on-trade distribution of third party brands.”

The primary problem at the moment being that Spirit seems keener on teaming up with rival bidder Greene King. If C&C Group wants Spirit it looks like it’s going to have to fight for it. But the offer already looks fair value – 115p per share against Greene King’s 109.5p per share – so it won’t want to get dragged into an escalating bidding war.

Investor reaction might give C&C Group pause for thought too – its shares are now 13.3% down since news of the bid broke on concerns over how the acquisition would be funded and possible dilution of existing shares.

Importantly, a bid for Spirit is not C&C’s only option.

In a call with journalists today CFO Kenny Neison said the firm could choose not make any acquisition and instead go down a more collaborative route and create partnerships to build more scale in England or, he suggested, it could downsize its business and become more of a niche, premium player.

Whatever the result of the Spirit bid, the group’s England & Wales business is going to change – the question now is what that change will look like.

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