Carlsberg (CARLB; Baa1, BBB+; S) Carlsberg's bid for Britvic

Final thoughts below, we will leave it that for now.

• Britvic is a producer of juices & soft-drinks (looks entirely non-alcoholic) and adds a new vertical for the brewer Carlsberg. We see no issues in BVIC's recent operating performance - 1H results (6m ending March) saw +4.4% volume growth and +60bps EBIT margin expansion. Analyst consensus outside of a strong FY24 (12m to Sept) look in line-with Carlsberg at MSD organic growth.
• At a high level it's taking on worse financials; CARLB runs low 20's EBITDA margin vs. BVIC's 15-17% with similar FCF conversion on that from both. Better fundamentals for the combined co will have to come from synergies, plans for which haven't been detailed yet.
• Upgrade in scale (moving from £9b to £11b in sales) is not significant enough for it to be a credit positive for us, geographical diversification is thin with BVIC similarly Europe heavy (68% UK, 11% France, 9% Ireland) and only bringing Brazil (9%) that looks light for CARLB currently.
• As we said above, price Carlsberg to BBB ratings for now on caution. Key questions are any pro-forma leverage targets and change to equity pay-outs (sizeable right now).
• Next catalyst will be the revised offer/price (if it wants to), deadline is 19th of July. We are skewed to seeing Carlsberg reapproaching.
• BVIC equities are not too confident at £11 pricing 45% prob. of £12.5 close. It offers +14% upside to rejected £12.5 and 18% upside to a potential £13 offer.
• CARLB bonds are +3 (26s) to +9 (28s). We don't think the curve needs to head any wider (based on the 28s/33s levels).
• Those not in CARLB risk should stay on the side-lines - on deal closure supply should come (we see 2-3 benchmark lines) and with it the potential for NICs.
• A brewer curve now at sector wides should leave secondary able to digest it. Euros looks likely given CALRB only there but we wouldn't rule out sterling; BVIC has most of its debt in series of private placement notes (totalling £550m) which are mix of £ and € and a small ($114m) dollar placement.