US hedge fund Engine Capital has written to C&C Group’s board to urge for a strategic review at the Magners cider maker.
New York-based Engine Capital owns just under 5% of the Ireland-listed drinks company and wants a review of the business “aimed at a sale”.
The fund, which said it invested in C&C Group four years ago, said “structural and self-inflicted issues” had led to the company’s “under-performance and valuation discount”.
“C&C has been a perennial underperformer and has failed to create shareholder value over any relevant measurable period,” Engine Capital managing member Arnaud Ajdler said in the letter.
“In our view, a sale could deliver returns far superior to the standalone value of the company, especially considering the time value of money and the execution risks of attempting to reverse self-inflicted issues.”
Approached by Just Drinks, a C&C Group spokesperson said: “We have no comment on Engine Capital or the media reports.”
Earlier this month, C&C Group announced CEO Patrick McMahon had resigned “with immediate effect” as it reported financial mistakes made during his time as CFO.
The Tennent’s brewer said it had reviewed its inventory and balance-sheet reconciliations after its board was notified of “discrepancies” earlier this year.
The news came alongside the publication of C&C Group’s unaudited financial results for its 2023/2024 financial year, which included lower revenue and pre-tax profits.
The Dublin-headquartered company’s performance in its 2022/2023 fiscal year was impacted by a botched software upgrade at its Matthew Clark and Bibendum businesses.
The problems stemmed from the roll-out of new ERP software, with C&C Group admitting it had seen “significant challenges” with the implementation of the systems. Alongside the disclosure of the problems, made in May 2023, C&C Group also announced the departure of CEO David Forde after three years at the helm. He was succeeded by McMahon.
In his letter, Ajdler wrote said: “The structural issues relate to C&C’s small size and the complexity of its portfolio. The company is subscale with a small market capitalization and limited daily trading liquidity. At the same time, the business is complex with disparate assets with different financial characteristics across different geographies.”
He added: “The company has also suffered from a host of self-inflicted issues over the last few years, including succession missteps, strategic mistakes, execution blunders, and an inability to return to its higher historical earnings profile.”
Engine Capital wants C&C Group to “strengthen the board with necessary financial and M&A expertise”, Ajdler said.
C&C Group is, he argued, “an attractive acquisition target given the quality of its assets”, pointing to “strong local brands”, including Tennent’s and Bulmers cider, as well as the company’s distribution business in the UK.
Ajdler said: “We suspect the optimal strategic acquiror of C&C’s assets is a scaled company with a global, established brand that could optimise marketing expenses, benefit from UK manufacturing capabilities, reduce general and administrative expenses, benefit from procurement savings, and leverage C&C’s leading distribution businesses to accelerate the growth of its own branded and higher margin products. Regardless of whether C&C’s assets are sold together or transacted separately, a combination with one or multiple strategic acquirors will create significant synergies.
“Additionally, due to its strong free cash flow generation, C&C is a suitable candidate for private equity buyers, who would be comfortable using more leverage, and therefore would reduce the company’s cost of capital.”
Shares in C&C Group were up 1.32% at 161.1p at 13:27 BST.
