Shares in brewer and pub owner Greene King (GNK.L) surged over 50% in late trade on Monday, after news broke of a surprise takeover deal that valued the company at £2.7bn.
Hong Kong-based property developer CK Asset Holdings announced a 850p-a-share takeover bid for Greene King late on Monday.
The all-cash bid represents a premium of 51% on Friday’s closing price of 563p and values Greene King at £2.7bn, or £4.6bn on an enterprise value basis.
"CKA's strategy is to look for businesses with stable and resilient characteristics and strong cash flow generating capabilities,” said George Colin Magnus, non-executive chairman designate of CK Bidco, the vehicle making the takeover offer.
“The UK pub and brewing sector shares these characteristics and we believe that this sector will continue to be an important part of British culture and the eating and drinking out market in the long run.
“Greene King, being a leading integrated pub retailer and brewer with strong real estate backing, is well positioned to capture the opportunities that lie ahead.”
Greene King’s board of directors has voted “unanimously to recommend” that shareholders approve the deal.
”The Greene King board is confident in the long-term prospects of the business but believes this offer represents a good opportunity for shareholders to realise value for their investment at an attractive premium, while also ensuring the future success of Greene King for employees, partners, customers and suppliers,” said Philip Yea, chairman of Greene King.
Pub closure fears
News of the surprise deal provoked immediate fears of pub closures. Greene King operates 2,730 pubs, restaurants, and hotels across the UK and owns the property for 81% of them.
Neil Wilson, the chief market analyst at Markets.com, said the “whopping premium implies CKA sees significant value in the property portfolio.”
“[Greene King] recently carried out a revaluation of its property estate that indicated a market value of £4.5bn against the £3.5bn book value,” Wilson said.
“In the last financial year the company disposed of 41 trading pubs in Pub Company, 69 trading pubs in Pub Partners and six closed pubs – 116 in all by my reckoning. With CKA taking it private I would not be surprised to see this accelerate.”
Greg Johnson, an analyst with broker Shore Capital, said the deal reflected the “rich property backing across the leisure sector, notably in pub stocks.”
Despite the hefty premium to Friday’s closing share price, Shore Capital’s Johnson said the bid could be “too low” given recent performance.
“A valuation of 13x current year earnings and 9.5x EBITDA (10x including interest swap losses) does not appear that compelling an exit multiple in our view, especially with the group generating c£180m of free cash flow,” Johnson wrote in a note to clients
Green King’s revenue rose by 1.8% to £2.2bn in the year to the end of April. Adjusted pre-tax profit rose by 1.6% to £246.9m. Johnson said a bid of 950p-a-share, valuing Greene King at £3bn, would be more compelling.
Greene King, which is known for its traditional English-style IPA, is one of the UK’s oldest still operational breweries. It was founded in 1799 in Bury St Edmunds in the south-east of England.
CK Asset Holdings was founded by Hong Kong billionaire Li Ka-shing and is run by his son. The company, which is listed in Hong Kong, was spun off from Ka-shing’s main holding company in 2015.