C&C’s purchase of Gleeson’s last month may have received a thumbs up from analysts, but just what does the cider manufacturer plan to do with the Tipperary-based company’s sizeable portfolio? Stephen Wynne-Jones reports.
Just one month on from the takeover of the US-based Vermont Hard Cider Company, cementing its intention to grow in the US, C&C, makers of Bulmers and Tennents took what can only be described as a retrospective approach, by purchasing the Gleeson Group for €58 million – paying €12.4 million in cash and taking on debt of approximately €45.6 million. Retrospective, that is, in that in purchasing Gleeson’s, it has entered into categories, chiefly wine and soft drinks, that it spent some time over the past decade seeking to depart from. While the deal is still subject to Competition Authority approval – expected to be granted in time for the end of C&Cs financial year in February – it has been described by C&C chief executive Stephen Glancey as a “significant investment. […] The acquisition has the potential to transform our existing Irish business through the addition of an extensive distribution network and the creation of an attractive, multi-beverage brand platform.” Glancey added that the Gleeson Group’s direct distribution network “should create a more resilient trading model”, which will benefit the group’s distribution, particularly to the on-trade. Analysts were quick to praise the deal, with Goodbody’s Liam Igoe saying “the transaction will accelerate the changing offering of C&C in the Irish market from a provider of a single cider product to a broad portfolio provider,” noting that the deal will add over 2% to the company’s earnings per share (EPS) initially.
Living In The Past
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Nonetheless, C&Cs apparent eagerness to build a multi-tiered portfolio, in Ireland at least, at a time when it is seeking to build a reputation as a premium cider maker overseas (international cider volumes at the company grew 32.7% in the six months to 31st August) has left many scratching their heads. It’s worth delving for a moment into C&C’s past to gain some perspective, as in the past decade (or thereabouts), the company has been one of the more active Irish companies on the M&A front. In June 2001, C&C announced it had purchased the Findlater Wine Merchants business for IR£12 million (€15.2 million), with then-chief executive Tony O’Brien anticipating strong synergies from the tie-up with C&C’s existing Grants wine business. In 2006, with the growth in cider necessitating increased production investment, chief executive Maurice Pratt led the sale of two key assets, first its Tayto Crisps business to Largo Foods (for €62.3 million), and following it up with the sale of Club soft drinks and Ballygowan to Britvic (for €249 million) in May 2007. In 2008, its cider strategy having suffered as a result of poor summer weather, the Findlater Grants business was also sold on, to DCC for €9.6 million. A year later, following the addition of three former Scottish & Newcastle executives (including Glancey) to the management team, C&C announced it was to purchase Anheuser Busch InBev’s Irish and Scottish assets, including Tennent’s for €205 million. It rounded up a busy decade on the M&A merry-go-round by selling its spirits and liqueur business, including Tullamore Dew, to William Grant & Sons in 2010 for €300 million. Since then, it has appeared that the company seems focused on its brewing activity, acquiring the Vermont and Hornsby’s cider businesses, appointing former Puratos operations director Joris Brams as managing director of its international division, and introducing Caledonia Smooth to the Irish market. Thus, its decision to take over Gleeson’s, which owns the Finches and Tipperary water brands (not dissimilar to the Club and Ballygowan brands it owned previously), and distributes a wide range of wines under the former Diageo-owned Gilbeys arm (drawing parallels with C&C’s former Findlater Grants business) was unexpected to say the least.
A Distribution Play
Ostensibly, it appears that C&C’s core aim in acquiring Gleeson’s is to avail of its distribution network. As with Bulmers, Gleesons has its principal production facilities in Tipperary, at Borrisoleigh, and has 11 distribution depots around Ireland, which will assist C&C in growing its Tennents and Caledonia Smooth brands in the on-trade. A source close to C&C’s management told Checkout: “this is much more of a distribution deal than for the brands per se. [C&C] is very much of the view that now that they have a multi-beverage platform, it will support the likes of Bulmers and Tennents, the latter of which is slowly gaining ground in Ireland. They see it as a ‘win-win’ in terms of the on-trade, which they haven’t had before.”But does C&C really want to go back into the wine distribution business? Having a multi-tiered beverage portfolio sounds appealing, but once the Competition Authority deal goes through, don’t be surprised to see several key brands potentially be up for grabs from rival drinks distributors: brands such as Yellow Tail, Faustino, Tindall, Hunter’s and Barton & Guestier would be welcome additions to rival distributors’ portfolios; not to mention Blossom Hill, currently Ireland’s leading wine brand.There’s also the case of Santa Rita, the Number 2 selling wine in the on-trade in the Irish market, according to Nielsen, which would be a lucrative addition to any distributor’s portfolio. If, that is, it doesn’t decide to adopt a direct selling approach into Ireland, which has been mooted in the past. Sallyanne Cooney, head of wines at Gleeson, has repeatedly rejected claims that the brand was about to jump ship. Under the C&C umbrella, it may find that the time is right to move on. "I think wine is completely irrelevant to the whole deal," says wine expert, Kevin Ecock. "It’s a terrible thing to say, as they’re the market leaders, but I had a discussion with Pat Cooney recently about how Gleeson would really need to invest if they were to become a leader in the wine trade. It seems from this, that wine really is not an interest of his at all."There’s no doubt at all that Santa Rita is sitting there and wondering whether they should go direct or not go direct – and this has given them an opportunity to really think about it.”
The Future For Gleeson
It seems likely that Pat Cooney and his team aren’t completely waving goodbye to the drinks trade, following the sale. Devil’s Bit Cider is being retained by its former owners, as is Merry’s Cream Liqueur, and one additional unnamed spirits brand. Should C&C not see value in retaining distribution for the myriad of drinks brands currently in the Gleeson portfolio (including some fairly recognisable names), perhaps one or two others may remain under Cooney’s control. However, the ‘Gleeson’ – if we can call it that – operation that emerges post-approval is likely to be a small shadow of its former self.