Greene King Deal May Spell More U.K. Pub Closures, Say Analysts

(Bloomberg) -- Analysts see the potential for further pub closures after Hong Kong’s CK Asset Holdings Ltd. agreed to buy Greene King Plc in a deal that valued the U.K. company at about 2.7 billion pounds ($3.3 billion).

Greene King shares surged 51% on Monday to the highest level since the Brexit referendum in June 2016, after CK Asset’s bid of 850 pence a share in cash. Peers Marston’s Plc, JD Wetherspoon Plc and Mitchells & Butlers Plc also rose.

The deal follows private equity firm TDR Capital’s agreement to buy U.K. pub-chain operator EI Group Plc for about $1.6 billion in July.

“Nearly all the different industries within the listed Leisure space have seen a pick-up in private equity interest this year,” Morgan Stanley analyst Jamie Rollo wrote in a note.

Here’s a round-up of market views:

Morgan Stanley, Jamie Rollo

(Cut to equal-weight from overweight, PT raised to 850p from 690p)

• The 850p per share bid implies a valuation of an estimated 9.2x enterprise value to Ebitda for calendar year 2020
• The bid also represents a 0.5x premium to historical managed pub transactions over the last 20 years

Kepler Cheuvreux, Geoffroy Le Guyader

• Proposed deal shouldn’t raise many competition issues
• Offer values Greene King at 13.3x P/E 2019e and 9.26x EV/Ebitda 2019e, which is in line with the P/E multiples for the acquisition of peer EI Group
• Offer looks fair, should be completed in December 2019

CMC Markets, David Madden

• The offer price “seems like a hefty price for a sector which has been under pressure” because of higher wages, higher business rates and a more fragile consumer environment
• The announcement has helped the pub sector as a whole because it may signal pub closures ahead, which could help the pubs that stay open
• “Price competition is key” and CK Asset’s investment might make sense if it can help lower prices

Markets.com, Neil Wilson

• The announced deal is “a bottle of champagne for shareholders,” but it may mean more pub closures
• Greene King owns the freehold or long leasehold on 81% of its properties, and CK Asset’s premium suggests the the Hong Kong firm “sees significant value in the property portfolio”

To contact the reporters on this story: Lisa Pham in London at lpham14@bloomberg.net;William Canny in Amsterdam at wcanny3@bloomberg.net

To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Namitha Jagadeesh, John Viljoen

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