Engine Capital, LP, which owns just under 5% of C&C Group Plc's (LSE: CCR) outstanding common shares, today sent the below letter to C&C Group Plc's Board of Directors.
Dear Members of the Board
Engine Capital LP (together with its affiliates, 'Engine' or 'we') is a long-term, significant shareholder of C&C Group Plc (LSE: CCR) ('C&C' or the 'Company'), holding just under 5% of the Company's outstanding common shares.
We invested in C&C more than four years ago due to the Company's high-quality portfolio of brands, leading distribution position in the U.K. and Ireland beverage markets, strong free cash flow generation, and the ample opportunities for the Board to significantly increase shareholder value. Despite these favorable attributes, 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. C&C's current trading valuation of 7x normalized EBITDA1 is 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 13x EBITDA.2
Given these dynamics, we believe the best path forward is for the Board to explore strategic alternatives for the Company. C&C remains a unique and strategic asset, which is why 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 risks (including CEO succession risks). A review of relevant and comparable transactions indicates that shareholders could conservatively receive between 239.00 and 263.00 GBp per share3 in value via a sale, which would represent a 58% premium to the Company's current trading price at the midpoint of this range.
C&C'S BOARD HAS AN OPPORTUNITY TO MAXIMIZE SHAREHOLDER VALUE THROUGH A STRATEGIC REVIEW AIMED AT A SALE
Given the Company's underperformance, poor track record of execution, discounted valuation, and CEO succession risks, we believe it is time for the Board to consider a different path forward and explore strategic alternatives for the Company. In our view, a sale could deliver returns far superior to the standalone value of the Company, especially considering the time value of money and the execution risks of attempting to reverse self-inflicted issues. We urge the Board to take the following steps with a view toward maximizing value for long-suffering shareholders: Strengthen the Board with Necessary Financial and M&A Expertise
As C&C considers whether to explore strategic alternatives, we believe it is critical to have individuals in the boardroom who possess the relevant financial skillsets and a shareholder mindset to assist the Company. As such, we believe the Board should add new directors with strong financial backgrounds - particularly in M&A, capital markets, and capital allocation - and add independent shareholder representation.
Initiate a Strategic Review Process to Monetize the Company
We believe C&C makes for an attractive acquisition target given the quality of its assets. C&C owns a portfolio of strong local brands including Tennent's, the leading Scottish beer brand (30% market share); Bulmers, the leading Irish cider brand (60% market share); as well as a range of fast-growing, premium, and craft ciders and beers. The Company is also the number one drinks distributor to the U.K. and Ireland hospitality sectors, a channel that is extremely important to the local beverage industry. Finally, C&C also has multiple manufacturing facilities in the U.K., which allows the Company to be nimble and flexible and lower import fees relative to Continental European players.
We suspect the optimal strategic acquiror of C&C's assets is a scaled company with a global, established brand that could optimize marketing expenses, benefit from U.K. manufacturing capabilities, reduce general and administrative expenses, benefit from procurement savings, and leverage C&C's leading distribution businesses to accelerate the growth of its own branded and higher margin products. Regardless of whether C&C's assets are sold together or transacted separately, a combination with one or multiple strategic acquirors will create significant synergies. Additionally, due to its strong free cash flow generation, C&C is a suitable candidate for private equity buyers, who would be comfortable using more leverage, and therefore would reduce the Company's cost of capital.
Finally, we believe the appointment of Mr. Findlay as CEO for the next 12 to 18 months is fortuitous as we believe he is particularly well-suited to lead this strategic review given his operational credentials, significant industry knowledge, and prior transaction experience.
Incentivize Management to Ensure the Best Possible Outcome
As the Board begins to evaluate the Company's strategic alternatives and what C&C could be worth in the private market, it is important to appropriately motivate executives critical to a potential transaction. We encourage the Compensation Committee to consider a transaction bonus pool for critical employees and the potential acceleration of unvested securities, as well as potential change of control payments if an executive is let go within 12 months following a transaction. We believe instituting this type of compensation framework will go a long way toward calming and motivating the relevant employees.
In conclusion, we firmly believe that C&C is at a crossroads today. The Board has a timely opportunity to maximize value over the coming months under the leadership of Mr. Findlay. It is our desire to work collaboratively with the Board to improve C&C and drive value for all shareholders, which is why we request an opportunity to discuss these important matters further with the Board. We look forward to engaging with you to discuss these topics further.
About Engine Capital
Engine Capital LP is a value-oriented special situations fund that invests both actively and passively in companies undergoing change.
Contact:
Tel: 212-321-0048
Email: info@enginecap.com
C&C GROUP PLC 
