Carlsberg may claim to be “probably the best beer in the world”, but its glass is apparently only half full. If its strategy to go “beyond beer” hits the spot, it could also soon become one of the UK’s biggest soft drinks groups.
At first glance, the Danish brewer’s bold (and so far rejected) £3.1bn bid for Britvic looks a bit left-field. Do sodas like Fruit Shoot, Tango and R White’s really sit comfortably next to a large beer cellar that includes Mythos, Kronenbourg and of course the Carlsberg range? It turns out the answer is “yes.”
With the younger generation in particular looking for alternatives to alcoholic drinks, every major brewery now produces non-alcoholic versions of their key brands, from Guinness to Heineken, from Corona to Carlsberg itself. The days when these variants were almost undrinkable are long gone, and large investments have led to the development of ever tastier drinks. And as more and more of the population shuns alcohol, mergers and acquisitions that combine breweries with soft drink makers may become more common.
Carlsberg is no stranger to the low and no alcohol market. There are already Pepsi bottling plants in Norway, Sweden, Switzerland, Cambodia and Laos, and PepsiCo is likely to agree to add Britain to the pot. A new 20-year UK bottling agreement was signed in 2020 and will run until 2040, although the agreements are terminated by a change of control. Its extensive non-beer beverage portfolio includes Imsdal water in Norway, Ramlosa in Sweden and Kildevaeld in Denmark, Carlsberg Sport in Denmark and Xixia soft drinks in China. A little confusingly, Carlsberg, in addition to being a Pepsi bottler, is also a Coca-Cola bottler in Denmark and Finland.
On the other side of the table, which is not yet ready for negotiation, Britvic’s ties to the brewing industry go back much further than most people realise. It was once owned by a consortium of brewers led by the old Allied-Lyons group. Allied Breweries was merged with Carlsberg in 1992 to become Carlsberg-Tetley. Such circularity only adds to the interest.
What Carlsberg wants to create is a wider “multi-beverage platform” in Britain, where it ranks fourth in market share in the brewing league table behind Heineken, AB InBev and Molson Coors. Despite signing a UK brewing joint venture with Marston’s in 2020 and creating Carlsberg Marston’s Brewing Company, it remains a weak No.4.
Trevor Stirling, drinks analyst at Bernstein, believes there would be some operational synergy between Carlsberg Marston and Britvic, as well as between Kronenbourg and Britvic in France. There would also be some procurement savings, while Carlsberg could cut costs by eliminating the overhead associated with running a separately listed company.
Although regarded as a British company, under the leadership of Simon Litherland, its chief executive since 2013, Britvic has become increasingly international, with 32 per cent of its revenue and 25 per cent of its profit coming from overseas markets. In addition to France, it operates in Ireland and Brazil and exports to around 100 countries.
Britain accounts for 11 percent of the Carlsberg Group’s revenue. If he succeeds in reeling in Britvic, that will rise to about 26 per cent.
In February, Carlsberg updated its revenue projections, based in part on continued expansion beyond beer to create a more balanced portfolio of beer, cider and soft drinks. One analyst pointed out that many aspects of brewing are equally applicable to soft drink production, including bottling, canning and distribution.
Britvic brands include J2O, a fruit juice based drink
RAZOR
While most CEOs facing takeovers are reluctant to hand over the keys, few will complain about the size of their exit packages. Litherland, 60, was paid a total of £2.9 million last year, including bonuses. This year’s basic salary has risen to £720,000 and the British boss, who is from Zimbabwe, is pictured holding shares totaling 487 per cent of the salary.
Some observers say the soft drinks bid is an admission of Carlsberg’s failure to close the gap between AB InBev and Heineken, the two biggest brewers in the world and in the UK. But one analyst said the Carlsberg Foundation had made clear its ambitions to support the company’s expansion plans, so further corporate action was likely. Although the foundation only has a 30 percent stake in Carlsberg, it retains control of the business thanks to the 76 percent of votes these shares correspond to in the split holding.
JC Jacobsen founded the company in 1847 by establishing a brewery on the outskirts of Copenhagen and named the plant after his son Carl Jacobsen. He founded the foundation in 1876.
Carlsberg, which first exported its beer to Britain in 1868, rejected any suggestions that Britvic was in any way an admission of defeat on other fronts. “Carlsberg believes that a potential transaction would allow it to capture attractive long-term growth opportunities from Britvic’s comprehensive portfolio of leading brands in an attractive segment of the drinks market where Carlsberg already has a strong track record,” he said.
The last time Britvic was involved in such a high-profile deal was more than a decade ago, when the Robinsons maker agreed a £2bn all-paper merger with AG Barr, the Scottish drinks group behind Irn-Bru. The deal was put on hold pending a Competition Commission investigation, but by the time the marriage received the commission’s blessing, Britvic decided it no longer needed the deal. Litherland, who was supposed to be a victim of post-merger cost-cutting, was instead promoted to the top job.
The latest proposal has caught many City watchers on edge, with most of the recent buzz surrounding the sector coming from Fever-Tree, the mainstream share price mixer group. There have been whispers in recent months that spirits makers such as Diageo and Pernod Ricard may have reigned over Fever-Tree after its share price plummeted, but 39p, or 3.8 per cent, returned to its shares today. £10.62 could point to further activity in the soft drinks sector.