Monday 9 December 2019

C&C gains as the UK moves to 'untie' pub trade

The Dail Bar is a subject of controversy
The Dail Bar is a subject of controversy
Gavin McLoughlin

Gavin McLoughlin

Shares in Bulmers and Tennent's maker C&C were up 4pc by mid afternoon in Dublin yesterday amid speculation that the Irish company stands to benefit from changes to the laws governing the British pub trade.

On Tuesday night the House of Commons unexpectedly passed a measure that would give some pubs more freedom in choosing beer suppliers.

About half of Britain's 50,000 pubs are "tied" - meaning they have to buy their beer from companies that own their lease above market prices, in return for other benefits.

But if it becomes law, the measure passed on Tuesday would give tied pubs the option to choose between a tied agreement and a market rent only agreement that would allow them to buy beer on the open market.

UK government plans had ruled out a rent-only option, citing concerns that it could hurt companies and the industry.

Goodbody analyst Liam Igoe told the Irish Independent that the measure could open up opportunities for C&C.

"If in time a proportion of [tied pubs], say half of those, decide to break the tie and buy their drinks or beverages in the open market, that will open up opportunities for the likes of C&C, who basically increase their potential market in the UK in the on trade, which is their core market."

But Mr Igoe said he didn't see the proposal as a game changer for C&C.

The proposals still have to pass through several legislative stages before becoming law, and could hurt pub groups like Punch Taverns and Enterprise Inns.

Shares in both those companies were down over 15pc yesterday afternoon.

The Campaign for Real Ale group said the vote was a "landmark victory."

"Allowing over 13,000 pub tenants tied to the large pub companies the option of buying beer on the open market at competitive prices will help keep pubs open and ensure the cost of a pint to consumers remains affordable. The large pub companies will no longer be able to charge their tenants prices up to 60 pence a pint higher than open market prices," the group's chief executive Tim Page said.

But Numis analyst Douglas Jack said he expected legal challenges, and that the changes would further deter landlords from investing in the industry.

The British Beer and Pub Association called the passage of the measure a "hugely damaging" decision and said it could prompt the closure of 1,400 more pubs with 7,000 job losses, citing a study commissioned by the UK government.

C&C recently made a preliminary takeover approach for UK-based pub company Spirit, which was rejected by the Spirit board in favour of a proposed merger with the Greene King pub group.

Shares in Spirit were down over 6pc yesterday afternoon in London, while Greene King had lost over 4.5pc.

Greene King has previously said that a mandatory free-of-tie option for pub tenants would have a hugely negative impact on it.

Greene King told a UK parliamentary committee that it "strongly believed" that "the model is not broken and that it will continue to evolve over time as an integral part of our diversified business."

(Additional reporting by Bloomberg and Reuters)

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