Infrastructure investment is hot. So hot indeed that more than a little refreshment is needed. Maybe that explains why CK Asset, the investment vehicle of billionaire Hong Kong tycoon Li Kai Shing’, has chosen to buy out Greene King, the Suffolk-based UK brewer. Most likely, it is the pubs, and the real estate under them, which appeals. CK Asset announced a tender offer for the company late on Monday afternoon at 850p per share, a substantial 43 per cent premium to the three-month average price. The offer values all of Greene King at £4.6bn, including net debt.
If this looks a little frothy, it is a bit. Recent transactions for EI Group (the old Enterprise Inns) and Punch Taverns have had lower premia, of 38 and 40 per cent respectively. Understandably, Greene King’s board recommended this deal to shareholders. There are reasons to do so. For one, the offer is all cash. For another, any financing will remain with CK Asset, and not be injected into Greene King in order to leaven the returns on capital, or suck out a hefty dividend. That is good news given that Greene King’s net debt to ebitda is already high at four times. There will be no change to management, nor to the group’s brand and strategy.
This is a real estate deal, not about beer. Beer consumption in the UK has fallen over the past 15 years. CK Asset has some form on this type of property deal. In late 2016 the Hong Kong group bought 136 pubs from Greene King and leased these back to the group. It must have found those returns refreshing, because it has come back for another round. This time a much bigger one. According to its calculations, based on the rental returns from all of the estate, CK Asset says Greene King has an equity worth of £2.7bn. A valuation of just over half the pub estate in Greene King’s most recent bond prospectus suggests that number has merit.
This deal perhaps gives some indication of just how heady the market is for UK infrastructure assets, rather than how interesting beer companies are. Borrowing costs are exceptionally cheap, and beer gets dearer all the time. That seems unlikely to change at Greene King’s pubs any time soon.