Investors cheered news today that beer and pubs group Marston’s (MARS) will merge its brewing business with Carlsberg UK to form Carlsberg Marston’s Brewing Company, lifting the shares a dizzying 101% to 65.5p.

The deal values the UK’s largest brewing business, with six breweries and eleven distribution centres, at up to £580m, almost three times its current market cap and around 13 times adjusted 2019 earnings before interest, tax, depreciation and amortisation (EBITDA).

Marston’s market cap before the announcement was a paltry £206m, below last year’s £222m EBITDA, and around 1.5 times what analysts expect for the year to 30 September 2020 according to Refinitiv data.

To put this into perspective and show how much damage the pandemic has done to the beer industry, when Fuller’s (FSTA) sold its brewing business to Japan’s Asahi last year it fetched 23.6 times EBITDA.

DOUBLES ALL ROUND

There are two major attractions for shareholders, firstly it raises significant cash, allowing Marston’s to continue to reduce gearing, and secondly it brings significant value creation through synergies and productivity improvements, estimated to reach around £24m a year.

In return for contributing its brewing assets, Marston’s will receive a 40% stake in the new business which will also comprise Carlsberg UK brewing assets, valued at up to £200m.

The combined brand portfolio will include iconic brands such as Marston’s Pedigree, Hobgoblin, Poretti and Wainwright as well as world beers and regional ales.

Chief executive Ralph Findlay commented, ‘Marston's will play a key role in the prospects of the combined entity which represents an exciting new chapter in Marston's established brewing heritage and future potential, whilst enabling it to further reduce its debt and focus on maximising value from its high quality pub estate.’

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Issue Date: 22 May 2020