Carlsberg (CARLB; Baa1, NR, BBB+; S) Agreement reached to acquire Britvic

Leverage ceiling increased to net 2.5x, pro-forma leverage is 3.5x, deleveraging to target by 2027. We expect one-notch downgrades from Fitch and likely from Moody's. We see curve as fair here BUT note issuance needs total £1.8b leaving little motivation to be in CALRB risk here. Cash lines are unch to +1bp.

• Carlsberg and Britvic have reached a agreement at £13.15/share after rejections at 12 and 12.50/share recently. EV is £4.1b at multiple of 13.6x. This should have been expected and as we said on Friday Britvic equities were confident (70%+ to £13 offer then).
• We see leverage moving from net 1.5x/gross 2.6x to 3.5x with issuance needs of £1.8b - co has confirmed 3.5x number in the pressor. Carlsberg currently only has debt in euros, Britvic (UK headquartered) has a mix of private placements in €/£ and $.
• It's increased it's leverage ceiling from net 2x to 2.5x with goal to reach that "during 2027". We see one-notch downgrades as likely given slow return to net 2.5x vs. Moody's ceiling of gross 3x. Fitch already flagged rating pressure on 12.5 offer saying "deleveraging would take several years" once it moved above its net 2.5x threshold (from 1.7x) - co has effectively confirmed Fitch's suspicions today.
• It's committed to maintaining a pay-out ratio of 50% net profit in dividends. Not much surprise here given it was on track to do more in buybacks this year and is where we would expect any cuts to come from. It announced this morning the current quarterly programme (DKK1b/£110m) had been suspended.
• Cost savings/efficiencies will be £100m/yr, total £80m of which to come by 2027. One-of costs to realise these annual savings to total £83m over 5yrs.
• Worth noting it's disclosed soft drinks already accounts for 16% of its volumes and 27% in Western Europe. We covered Britvic at high-level other day. Summary take is similar margin with limited geographical diversification being added on. See here for full.