Drink and snack foods group Cantrell & Cochrane is lining up a stock market listing in Dublin and London in May or June next year, with a targeted market capitalisation of around €1.3 billion (£1 billion).
C&C's outgoing chief executive and incoming chairman, Mr Tony O'Brien, said a final decision on the IPO will be made early in the new year, but added that there are many factors currently favouring a flotation.
These include the recently-concluded WTO agreement, the apparently short duration of the Afghan war, low inflation and low interest rates and an expectation that consumer demand in the US will improve and result in a recovery in equity markets.
Since the highly-leveraged management buyout three years ago, C&C has operated with a heavy debt load - net debt at the end of September was €730 million. Interest cover at the end of the financial year was just 1.93 times. Mr O'Brien said that post-IPO he would like to see interest covered 4 to 5 times by operating profits, and this suggests that a sizeable volume of new equity - possibly in excess of €300 million - will be raised to reduce debt.
BC Capital, the private equity group which backed the MBO, has a 92 per cent stake in C&C. Mr O'Brien said that while BC will probably sell a large proportion of its stake, he expects it to retain a stake of around 40 per cent and agree not to sell any more shares post-IPO for an agreed period of time. "Otherwise we would have a heavy overhang," he said.
If the flotation goes ahead, it will result in a windfall for the eight-strong management team involved in the MBO. The team currently owns 8 per cent of C&C, and this could be worth in excess of €80 million on the basis of a €1.3 billion capitalisation and an enlarged share capital.
The flotation will also benefit C&C's 2,000-plus staff. The company reached an agreement with its unions this year which will see staff get £500 (€635) worth of shares for every year of service. This will cost C&C about €15 million. In addition, the company has agreed to negotiate a profit-sharing scheme one year after the flotation.
Ahead of the IPO, C&C has used an improved credit rating to carry out a radical restructuring of its debt. Mr O'Brien said that between the senior debt and mezzanine finance, C&C has reduced the interest rate on its debts by 1.5 percentage points, and that some €12 million in interest will be saved as a result. Last year, C&C's interest charge was €68 million, the same as the previous year. "What we have done with the debt is a step towards flotation," he said. One difficulty that C&C will need to overcome, however, is the absence of an obvious peer group against which it can be compared. "We are very broad-based, while British companies like Diageo, Bulmer and Cadbury-Schweppes have a narrower focus so it can be hard to get a comparison." But he said the group would hope to float at 9 to 10 times EBITA (earnings before interest, tax and amortisation) and this fits with the targeted market value of around €1.3 billion.
If the IPO does go ahead, it will come three and a half years after C&C abandoned an earlier flotation plan. At that time, owners Allied Domecq shelved plans at the last minute for a flotation after the slump in share values due to the Russian economic crisis.
Allied Domecq subsequently sold C&C to the management buyout group backed by private BC Partners, for £578 million (€734 million).
