The Japanese beer giant Asahi has made a massive vote of confidence in the future of the real ale sector in the UK with its £250m purchase of Fullers’ beer business.
And if that’s not the angle you took away from the story, you’re not thinking this through properly.
The beer business earned Fullers £10.6 million before interest, tax, depreciation and amortisation in the 12 months to March last year. The net cash going into Fullers’ pockets after the deal with Asahi is completed is expected to be around £205 million. So the purchase price means, effectively, Fullers receives all the earnings it might have got from the beer business (assuming nothing had changed) for the next 19 years, until 2038, in one lovely big cheque, right here and now.
At the same time, Asahi has to cover its £250m payment for the business out of the profits it expects to make from it, and preferably in not too long a time: its current return on invested capital (ROIC) is apparently 7.34 per cent, which would pay off the purchase price for the Fullers beer business in just under 14 years. In other words it expects that business to be at least as profitable as it is now for at least the next decade, in order to cover the cost of buying it, given the returns it normally gets.
Nobody bungs a quarter billion big ones at a business unless they think that business has a future, and they’re going to get a decent return on their money. Fans of cask ale, and Fuller’s beers, should be cheering until the pint glasses rattle on the shelves at the confidence Asahi is showing in the sector.
Inevitably, of course, the usual army of whingers has come out and shown the usual failure to understand how business works, and what the strategies of the two companies involved in the deal are. Some seem to think Fullers should have turned the Japanese offer down: this would, of course, have been both stupid and illegal. It’s the job of a company’s board to maximise the returns for that company’s shareholders: if they are offered a risk-free way to bring in today all the earnings a part of the company might see for two decades, and they push it away, they would rightly be sued for not acting in shareholders’ best interests. In Fullers’ case, the division it is selling represents only 13 per cent of operating profits. It intends giving between £55 million and £69 million of the cash from Asahi to its shareholders straight away, and putting a bung into the company pension scheme as well, but that still leaves a substantial sum – over £120 million, certainly – to spend on new pubs and hotels, which bring in much more money than brewing does. The City is certainly clear on what a great move Fullers has made: the shares closed up 15.5 per cent, and Douglas Jack, a vastly experience City analyst, declared: “This transformative deal provides the foundation for many years of strong growth. We are moving our recommendation from ‘Add’ to ‘Buy’.”
Asahi clearly thinks there is profit to be had in the business of supplying beer to British pubs,. With Fullers’ emphasis, still, on cask beer brands it obviously believes buying the rights to brew cask beer is worth a substantial wodge of corporate cash and there is a hearty future ahead. Meanwhile, on the “oh no the accountants will ruin London Pride” front, as part of the fall-out from the AB Inbev-SAB Miller merger, Asahi ended up with Pilsner Urquell and Meantime in London, among other Western beer brands. I’ve heard no moans from either of those two concerns about how the Japanese are treating them. If you pay a lot of money buying a product that sells on its premium image, you don’t mess about with that image.
The keyboard warriors who wave their anti-corporate credentials, declaring that now Fullers’ beers are going to be brewed by a multinational conglomerate they won’t be drinking them, are particularly nauseous: they’re typing their rants on a computer, or a phone, made by a multinational, using electricity from an energy supplier that is probably also a multinational. A fair few years back I was in the wood-panelled boardroom at the Griffin brewery, all heavy oak tables and oil paintings of bewhiskered Fullers, Smiths and Turners from Victorian times on the walls, and I asked Michael Turner, then the company’s managing director, later its chairman, if he didn’t occasionally feel oppressed with all these ancestors staring down at him. “Frankly,” he said, in his forceful Old Etonian accent, “I don’t give a fuck.” I would be confident that, whatever the whingers are saying, Fuller’s is currently not giving a fuck all the way to the bank.
Finally, let’s offer many congratulations to Twickenham Fine Ales, my local craft beer brewery, which finds itself, just 15 years after it started, now London’s oldest independent brewer. That won’t be something founder Steve Brown ever expected to happen.