Business Opinion
Blood thicker than brewing water?
Tumultuous events at Wandsworth have prompted a groundswell of thinking that Young & Co is on a sale countdown.
A period of massive change at the brewer and pub operator, including the death of its octogenarian chairman and perceived guardian John Young, the departure of a brace of directors linked to him, the sale of the historic Ram Brewery, and the formation of a joint brewing venture with Bedfordshire rival Charles Wells, has got mouths wagging.
The changes heaped further fuel on a fire first lit last year when Young's switched its listing to AIM, London's junior market, under a simplified share structure, making it "less" bid-proof. These events have got everyone, from the open-toed real-ale brigade to the City's scribblers and dealmakers, calling time at the bar for Young's.
But is the takeover talk overdone?
Merging brewing operations is nothing new - brewers were forming partnerships and merging businesses centuries ago. John Fuller teamed up with rival brewer Henry Smith and his brother-in-law John Turner in 1845, while the Greene and King brewing families came together in 1887.
Young's says that the departure of about 20 central support staff is merely a case of "right-sizing" the business following the relocation of its brewing operations.
Senior banking sources close to the group have intimated the company's intention to play the role of predator, rather than prey. Wanting a deal and landing a deal are two very different things, especially in the freehold pub market, but should it find a target, Young's is said to have the ability to fund a deal up to £100m, notwithstanding whatever debt it may be able to raise against a target.
Its house broker is predicting ebitda of £22m in the current year and £25m in 2008, suggesting its current debt levels of £100m are cautious by today's standards.
There is also the opportunity to raise finance against its 225 pubs. A revaluation of the pub estate has raised its asset value from £200m to £400m. It will also soon have the £70m proceeds from the brewery sale burning a hole in its pocket: they must be reinvested in the business to avoid facing tax liabilities.
It will be interesting to see whether it attempts to step in at Capital Pub Company, ahead of its expected IPO. Advisers acting on behalf of Young's are said to have contacted the group.
Young's is already investing quite aggressively in its pubs, something that it could be argued is rather overdue. In the six months to September 2006, £37.4m was spent, although this included the acquisition of 14 pubs.
Capital investment is starting to bear fruit, with managed sales rising 15.2% for the half-year and operating profits climbing 7.1%. Recent examples are Wimbledon's Dog & Fox and the Hand & Spear at Weybridge, both in Surrey.
Some observers suggest Young's is in play but that could be said of almost every company in the sector. Only the management and shareholders really know.
Companies such as Young's are normally sold because the management is doing the wrong thing or because shareholders are either unhappy or uninterested. Young's management, led by Stephen Goodyear - one of the industry's good guys - seems to be doing the right things. Certainly the decision to crystallise the value of the Ram Brewery was a bold one. As for shareholders, only they themselves know the answer.
It is also worth considering the company's value implicit in the current share price of £31.18. A successful bid would need to come at a 20% or 30% premium, which means that a deal for the business any time soon seems unlikely.
Having been able to witness the benefits of a sizeable deal at close quarters, following rival Fuller's acquisition of Gales,
I suspect Young's will be keen to land one of its own.
Mark Stretton is editor of Morning Advertiser sister publication M&C Report. To subscribe, ring Frances Bickley on 01293 846578.
