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Investor calls for C&C Group sale

Engine Capital, which owns just under 5% of C&C Group, has sent a letter to the board describing the company as “a perennial underperformer” and calling for its sale.

Investor calls for C&C Group sale

In a letter to C&C’s board, New York-based investment firm Engine Capital criticised the group for underperforming as a result of “structural and self-inflicted problems”.

The letter called for a review of strategic alternatives aimed at a sale due to issues which make it unfit for public markets, the firm, which describes itself as a “long-term, significant shareholder of C&C Group”, argued. C&C manufactures brands including Tennent’s lager as well as ciders Magners and Bulmers. It is based in Dublin.

Engine Capital’s letter reads: “We invested in C&C more than four years ago due to the company’s high-quality portfolio of brands, leading distribution position in the UK and Ireland beverage markets, strong free cash flow generation, and the ample opportunities for the board to significantly increase shareholder value. Despite these favourable attributes, C&C has been a perennial underperformer and today is deeply misunderstood and undervalued by the market because of a combination of structural and self-inflicted problems.”

The letter, signed by managing member Arnaud Ajdler, relates these structural issues 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. As a result, the Company has no pure play peers of similar size or geographic composition, making it more difficult for public market investors to evaluate, diligence, and value it,” the letter read.

“Given these dynamics, we believe C&C makes for a poor public company and is unlikely to ever be properly valued in its current form,” it continued.

It goes on to detail the “host of self-inflicted issues” that Engine Capital believes have added to the challenges, including “succession missteps, strategic mistakes, execution blunders, and an inability to return to its higher historical earnings profile”.

“The Company has consistently disappointed operationally and financially, failed to grow its Magners brand in England and Wales, and its enterprise resource planning implementation has been mismanaged. This has all led to reduced customer service levels and increased customer churn,” it stated.

The Company recently recorded a €125m goodwill impairment tied to the deteriorating performance of the Magners brand.

C&C also announced several prior-year accounting adjustments this month after “accounting mistakes and errors” caused the firm to take a €17 million charge.

CEO Patrick McMahon announced he would be stepping down as a result of the errors, meaning C&C has now had four CEOs in less than four years with the prospect of a fifth chief executive in 12 to 18 months.

Engine Capital’s letter continued: “Given the company’s underperformance, poor track record of execution, discounted valuation, and CEO succession risks, we believe it is time for the board to consider a different path forward and explore strategic alternatives for the company. 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.”

The investor believes C&C would be attractive to either strategic or private equity buyers due to its strong brands and free cash flow generation, and that buyers would pay up to £263.00 per share in a sale (representing a 58% premium to C&C’s current trading price).

In a statement shared with the drinks business, C&C responded to the letter written by Engine Capital.

C&C said: “The Board welcomes feedback from all shareholders and has a clear focus on creating shareholder value.

“As set out in the recent FY24 year-end results update, the underlying performance of the business has been in line with expectations, and progress has been made in returning capital to shareholders. Operationally, the key priority is to deliver the substantial actions currently being progressed at pace throughout the business, driving forward both brand and distribution revenue, improving margin, while returning up to €150m by the end of FY27.”

Read Engine Capital’s full letter to the C&C board here.

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