I've been busy with the Great British Beer Festival and with editing (writing) my local CAMRA Magazine, so haven't had time to blog, but I couldn't help but quickly jot down one or two thoughts about Greene King being taken over by Hong Kong conglomerate CK Asset Holdings for £4.6 billion, including its debt. The Hong Kong company is offering 850 pence per share, a 51% premium to Greene King's closing stock price on Friday.
So there bare facts are that a successful business has bid a premium for another successful business. You know what? That happens all the time. Most businesses don't grow organically, or rather they do, but only to the point that become interesting or successful enough to either take someone else over, or be taken over. It is very much a dog eats dog situation. And a normal one, though in this case exacerbated by the weak pound which makes British owned asets relatively cheap.
There has been a muted reaction to this in the Twittersphere and elsewhere on social media. Roger Protz has been the foremost tweeter with this:
In response, Martyn Cornell hits the nail on the head:There goes another one! Greene King founded 1799 with deep historic roots in East Anglia to be sold to a Hong Kong property company. Given its base in Bury St Edmunds, is nothing sacred? Will Marston's be next?@GreeneKingIPA @CAMRA_Official— Roger Protz (@RogerProtzBeer) August 19, 2019
As I said elsewhere, let’s be honest ... nobody’s heart ever leapt at the thought of going into a Greene King pub— Martyn Cornell (@zythophiliac) August 19, 2019
So there we have it. As Greene King carries little emotional attachment in the mind of most beer drinkers, it was always unlikely that its takeover would have beer fans rushing to man the barricades. That's just how it is, but wait. Greene King is a big part of the British brewing industry. It owns a large number of pubs - over 2,700 - and these are spread all over the country. Heck we even have plenty of them here in Greater Manchester where, one must admit, they aren't exactly the most popular beerwise. Their type of beer is not always particularly suitable to local tastes. (See also post below.)
Concerns are, as always in these circumstances, around what the new owner intends to do with its new acquisition. Pubs, by their nature, can be turned into easily realisable cash, by selling them for different use, or for the land they occupy. That though is an ongoing issue as social habits change and custom becomes less, though there are signs that this is bottoming out to some extent.
According to their statements, "CKA's strategy is to look for businesses with stable and resilient characteristics and strong cash flow generating capabilities," said George Colin Magnus, chairman designate of the CKA unit in charge of the acquisition. "The UK pub and brewing sector shares these characteristics."
So, on the face of it, they want the business to continue to generate cash. They have given an assurance along the lines of business as usual (see here for more). Can we trust this? Doubtful, but the selling off of assets would, where seen as appropriate, have likely happened under current GK management anyway. It is an uncomfortable fact that many pubs are worth far more to the owners as anything but pubs.
So where does that leave us? A largely unloved vertically integrated pub and brewing business has been taken over by someone else who wants to make money out of it. Yes assets will be sold to pay for the purchase. Will vertical integration continue? Tricky one, but the takeover recommendation gives a strong indication that the brewing side will continue.
Nonetheless we will have to wait and see how this one plays out.
Seems CKA already own a number of freehold pubs which are leased to Greene King
The fact that Greene King owns the freehold or long leases on 81% of its pubs, certainly shows the PubCo model with its huge debt, to be a millstone round the neck of the pub industry.
As this is a cash offer, we can assume that CKA have reserves that need to be wisely used.