C&C Group shareholder Engine Capital has urged the drinks group to consider selling up.
In a scathing open letter, the private investor – which owns 5% of the Dublin-headquartered drinks group – described C&C Group as a “perennial underperformer” that had been blighted by “structural and self-inflicted problems”.
It called on C&C’s board to conduct a review of strategic alternatives, adding its belief the group could attract an offer that would represent a 58% premium on its current share trading price.
Engine Capital said it had invested in C&C Group in 2020 “due to due to the company’s high-quality portfolio of brands [and] leading distribution position in the UK and Ireland”, as well as its “strong free cash flow generation” and the opportunities for the board to increase shareholder value.
“Despite these favourable attributes, C&C has been a perennial underperformer and today is deeply misunderstood and undervalued by the market because of a combination of structural and self-inflicted problems,” it said.
The structural issues, Engine Capital managing member Arnaud Ajdler said, related to C&C’s “small size and the complexity of its portfolio”. This, he said, made it “more difficult for public market investors to evaluate, [do due] diligence, and value it”.
The company had also, Ajdler said, “suffered from a host of self-inflicted issues over the last few years”. He pointed to a €125m goodwill impairment tied to its Magners brand, as well as the fact C&C Group had appointed four different CEOs in less than four years, as examples of how it had “consistently disappointed operationally and financially”.
Ajdler described C&C’s current trading valuation of circa seven times “normalised EBITDA” as “entirely disconnected from the strategic value of its assets”.
He added his belief that a sale, based on “relevant and comparable transactions” could see shareholders receive between £2.39 and £2.63 per share, “which would represent a 58% premium to the company’s current trading price at the midpoint of this range”.
Acknowledging Engine Capital’s letter, C&C’s board said it “welcomes feedback from all shareholders and has a clear focus on creating shareholder value”.
“The underlying performance of the business has been in line with expectations, and progress has been made in returning capital to shareholders,” it added.
C&C Group, which owns Tennent’s lager, as well as the Bulmers and Magners cider brands, announced CEO Patrick McMahon was to stand down earlier this month, following the discovery of historic accounting errors during his tenure as CFO.
Board chair Ralph Findlay has been appointed group CEO, a position he is expected to occupy for the next 12-18 months as the board begins the search for a successor.
The group also posted delayed unaudited accounts last month showing a sharp drop in profits following disruption to its distribution business.
C&C Group said it expected to report net revenue for the year to 28 February of €1.65bn, a 2% decline.
It said the implementation of a complex ERP system upgrade in its Matthew Clark and Bibendum business had a material impact on the performance of the GB distribution business and, as a consequence, group performance.
Nevertheless it said it was “pleased” with the performance of key brands, with Tennent’s and Bulmers continuing to gain share in Scotland and the Republic of Ireland respectively.
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