Danish beer brewer Carlsberg sweetens up its beverage portfolio

The Danish brewer Carlsberg (CSE:CARLa) is set to acquire the London-listed soft drink maker Britvic (LON:BVIC), known for its juices, carbonated drinks, and mixers. Britvics portfolio includes brands such as Robinsons and Tango, and has the exclusive rights to manufacture and sell PepsiCo (NASDAQ:PEP)'s brands in the UK and Ireland.

It looks like a good deal for Britvic's investors, who can now sell their shares for £13.15 and receive a c. 45% premium over the price just a few months ago. This comes after Britvic rejected an offer of £12.50 per share from Carlsberg last month. 

Over the last few months, the Britvic stock price has worked its way up from its ‘steady’ level of around c. £8.50 in anticipation of a bid from Carlsberg. On the other hand, the process has been less delightful for Carlsberg investors. The stock took a 10% hit when Britvic declined the initial bids, with investors fearing Carlsberg would enter into too aggressive bidding and end up overpaying for the British soft-drink maker. 

But with today's agreement, both sides could now be aligned. Britvic investors are getting a generous premium over previous trading levels, and Carlsberg investors breathe a sigh of relief with a too aggressive price off the table. Investors acknowledge the deal, with Carlsberg's stock gaining c. 4% after the announcement.

With a price of £3.3 billion and a valuation where Carlsberg is paying 20 times, expected earnings of c.  £165 million in 2024, this doesn't come across as a bargain for Carlsberg. However, with Carlsberg expecting to deliver cost-cutting synergies of £75m, this can turn out to be a solid acquisition if the integration plan goes as envisioned.

The acquisition will help Carlsberg enhance top- and bottom-line growth in Western Europe, a market that has challenged Carlsberg with volume stagnation. Britvic focuses on the British market, which makes up almost 70% of its revenue. The remaining revenue comes from France, Ireland, and Brazil, and a smaller part comes from exports to the international market. While the European countries play well into Carlsberg's strategy of growing volume in Europe, it is harder to see how the Brazil operations, making up c. 10% of Britvic's revenue, fit into Carlsbergs Europe and Asia-focused strategy. It would not be surprising to see a spin-off of the Brazilian operation as part of the wider integration process into the Carlsberg Group.

Jakob Westh Christensen, eToro Market Analyst