Magners Cider maker C&C Group has been targeted by activist investor Engine Capital, demanding a strategic review process that could lead to the business falling into private hands.
“C&C has been a perennial underperformer and today is deeply misunderstood and undervalued by the market because of a combination of structural and self-inflicted problems,” the private equity house said in a letter to C&C’s board.
C&C Group has seen its share price fall 52 per cent in the last five years as it has struggled to retain senior leadership. It has cycled through four CEOs in under four years, with a fifth expected soon.
Along with Magners, the company also owns Scottish beer Tennent’s and Irish cider Bulmers.
Engine Capital said it had invested in C&C over four years ago, and it currently owns just under five per cent of its stock.
C&C currently trades on a valuation of around seven times its normalised operating profit, which Engine said was “entirely disconnected from the strategic value of its assets and reflects a steep discount to transaction multiples in the private markets”, which have averaged around 13 times operating profit.
The private equity house pointed to overall management problems of “succession missteps, strategic mistakes, execution blunders, and an inability to return to its higher historical earnings profile” as why its valuation was so low.
The structure of the business was also pulling down its value, Engine argued, blaming C&C’s small size and the “complexity of its portfolio”, with disparate assets with different financial characteristics across different geographies.
“As a result, the company has no pure play peers of similar size or geographic composition, making it more difficult for public market investors to evaluate, diligence, and value it,” the company added.
Engine estimated that if C&C were to go private, it would sell for at least a 58 premium to its current share price
“We are confident that buyers would pay a price that is far superior to its standalone value, especially considering the time value of money and execution risk,” concluded the activist investor.
C&C’s share price rose 1.8 per cent on the news this morning.
Engine Capital declined to comment. C&C Group has been contacted for comment.