**UPDATE: Greene King And Spirit Agree Terms Of Merger**
LONDON (Alliance News) – Greene King PLC said on Tuesday it has reached an agreement with the board of Spirit Pub Co PLC to acquire the company, potentially bringing an end to the takeover battle for the pub company which had pitted it against C&C Group PLC.
FTSE 250-listed pub group Greene King said that under the terms of the deal, Spirit shareholders will get 0.1322 new Greene King shares per Spirit share, plus 8 pence per share in cash payable by Spirit in dividends. Spirit will pay 1.5 pence per share in its proposed final dividend for 2014 and will pay a special interim dividend to shareholders of 6.5 pence per share to cover the remainder of the consideration.
The deal values Spirit shares at 115 pence per share and values the entire company at around GBP773.6 million. The valuation is an approximate premium of 52.2% against the 75.5 pence per share closing price of Spirit shares on September 22, the last day prior to the opening of the offer period.
Following completion of the deal, Spirit shareholders will own approximately 28.9% of the combined company, with Greene King shareholders owning the remaining 71.1%.
Spirit has been the subject of a takeover battle between Greene King and Irish drinks company C&C Group. Last week, Spirit said it had extended the takeover deadline for Greene King’s bid to Tuesday after saying it was still recommending the offer. The deal remains subject to approval from both sets of shareholders and from competition authorities. Greene King expects the deal to close in the first half of 2015.
C&C has yet to make a firm offer for Spirit and has not yet released a statement on Greene King’s bid today. Investors in C&C had given the cold shoulder to the potential bid for Spirit on the back of analyst concerns that the deal would mark a substantial change to its business model. At present, C&C focuses on the drinks business, making Magners cider and Tennent’s lager.
Greene King said it estimates cost synergies of around GBP30 million per year from the Spirit merger. It said it would incur one-off costs of around GBP25 million to achieve those savings, with around 40% of the synergies to be realised in 2015-16, rising to 80% in 2016-17 and 89% by 2017-18.
Greene King also briefly included a trading update for the 24 weeks to October in its statement on the Spirit acquisition, saying like-for-like sales for its retail arm were up 0.8%, with like-for-like pub partners net income rising 3.7% and brewing & brands volumes rising 5.9%.
Shore Capital said the Spirit acquisition looks to be a “sensible move” for Greene King. The structure of the deal will leave the enlarged balance sheet of the combined company “well financed” and capable of delivering “strong cash generation”, Shore said.
The broker added Spirit’s asset base, in particular its presence in the central London market, “has been unrewarded by the market” and added there is “significant scope for earnings accretion through cost synergies and organic pre pub improvement”.
Shore also noted the trading update from Greene King, saying that it was encouraged by the improvement in trading and said growth in its tenanted and brewery division “remains robust”.
Shore reiterated its Buy recommendation on the stock, with an 808 pence price target, and said there was “scope for a re-rating as the synergies and profit improvement are delivered”.
Despite the positive outlook on the acquisition from the broker, Greene King shares were down 3.8% to 777.5 pence in late morning trade on Tuesday, putting it among the worst performers in the FTSE 250.
By Sam Unsted; firstname.lastname@example.org; @SamUAtAlliance
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