Heineken buys U.K. pub estate from RBS for $646m

Heineken NV, the world's third- biggest brewer by volume, acquired 918 U.K. pubs it manages for Royal Bank of Scotland Group Plc in a 412m-pound ($646m) deal that creates one of Britain's biggest pub owners.

The purchase of the Galaxy Pub Estate will give Heineken ownership of 1,380 pubs when added to the 462 outlets already controlled by the Dutch brewer, the Amsterdam-based company said today in a statement. Heineken's Scottish & Newcastle unit has managed the Galaxy pubs on behalf of RBS since 1999.

The acquisition is a "significant vote of confidence" in the U.K. pub industry, Stefan Orlowski, Heineken's U.K. managing director, said in the statement. U.K. pub profits have been hit by a slump in consumer spending, a smoking ban and discounted beer in supermarkets. Outlets are closing at the rate of 25 per week, the British Beer & Pub Association said in March.

Heineken, which is struggling with declining beer sales in western Europe, said it will take over the largely freehold pub business on a "cash-and-debt-free basis." In addition to the purchase price, 10m pounds has been paid to settle accrued amounts owed under a management agreement between RBS and Heineken, the brewer said, adding that the acquisition will result in a one-time pretax expense of 28m pounds.

Acquisition funding

The transaction values Galaxy at about 7.9 times its 12- month earnings before interest, tax, depreciation and amortization of 52.3m pounds. U.K. pub companies Punch Taverns Plc and Enterprise Inns Plc trade at multiples of 7 times and 8.7 times, respectively, according to Bloomberg data.

"The valuation is difficult to assess as a result of too many loose ends, but the immediate one-off costs suggest that this has not been a bargain," Richard Withagen, an analyst at SNS Securities in Amsterdam, said in an e-mailed note. "Strategically, the acquisition absolutely makes sense."

Heineken will fund the purchase with existing cash and credit facilities, according to John-Paul Schuirink, a spokesman for the brewer. The company said May 5 it obtained a 2bn- euro five-year credit line to refinance and back acquisitions.

RBS, Britain's biggest government-owned lender has been selling assets including bank branches and its credit-card payment processing unit. The Edinburgh-based bank also has to sell its insurance operations, which includes Direct Line and Churchill, by 2013 to comply with a European Union ruling following its receipt of state aid.

'Leading position'

The sale of the Galaxy estate is "in line with the asset reduction element of RBS' non-core strategic plan," the bank said in a statement today. "The proceeds received will reduce further the overall funded assets in non-core." RBS had reduced its non-core businesses to 105 billion pounds as of Sept. 30, since it created the non-core division in 2009.

Heineken said it expects the purchase to be "earnings accretive" from December.

"Our ownership of this estate strengthens our leading position in the U.K. beer and cider market, particularly in the valuable on-trade channel," Didier Debrosse, Heineken's regional president for western Europe, said in the statement.

Heineken rose 1% to 35.11 euros as of 12:46 p.m. in Amsterdam trading. RBS gained 4.1% to 21.4 pence.

RBS Corporate Finance and Sapient Corporate Finance advised the bank on the transaction. Nomura acted for Heineken.

(Published by Bloomberg - December 4, 2011)

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