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Carlsberg (CARLB; Baa1, NR, BBB+ CW Neg) Follow up on Fitch

CONSUMER STAPLES

Nothing new from Fitch; its waiting for deal to clear reg. approvals before taking action (i.e. a downgrade). Sees deal as net positive but notes Britvic is EBITDA margin and FCF dilutive in the short-run (former we already mentioned, latter from the interest payments on debt financing).

  • Worth noting on top of Britvic and associated £1.8b cash short-fall there is another another £206m Carlsberg is spending to buyback 40% JV stake with Marston (it announced the same morning). We mentioned it on Monday but didn't include in cash short-fall number above.
  • Fitch has noted a return to BBB+ may never happen given CARLB's updated 2.5x ceiling (from 2x). It says "might not align" with BBB+ rating; read as dependent on where margins/growth ends up in long-run/'27.
  • Only negative we would add to above mentioned by Fitch is limited geographical diversification; Carlsberg is Europe heavy (70%) and Britvic is similar with a concentration in the UK (68%).

For credit the immediate impacts are; 1) expect sizeable supply post-close and 2) price secondary to BBB ratings on leverage bump. The question that equity markets are, and will continue to debate, is if Carlsberg made the right move in increasing its non-alcoholic soft-drink exposure (from 16% to 30% of sales volume). The answer to that will take many years to answer as trends in consumer behaviour evolve (as is the case in evaluating any M&A deal's success).

Equities pricing high chance (~85%) of regulatory approvals. Carlsberg expected the deal to become effective by 1Q25 (early next year).

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