Talk in the market has it that advisers Goldman Sachs and IBI Corporate Finance have different views on how Allied Domecq can get the best price for Cantrell & Cochrane. Goldman is understood to favour a trade sale or a break-up of C&C, while IBI is still thought to favour the flotation option that most in the Irish market - and C&C management - would prefer.
Certainly, the movements in stock prices over the past week have lengthened the odds on a flotation, with the earnings multiple that C&C might fetch sharply lower than it would have got a week ago.
Mid-capitalisation Irish stocks are now trading on historic price/earnings multiples of 12 to 14, well off the p/es of 15-18 that the mid-caps were trading at when the market was at its peak.
Last year, C&C had after-tax profits of £45 million and it seems reasonable to expect that the group will notch up after-tax profits of £50 million-plus in the year to the end of this month. On that basis, C&C would probably be valued at around £600 million, given the multiples of Irish mid-caps after the recent hiatus on the markets. That's a good way short of the £700 million valuation put on C&C in the market when Allied Domecq announced its strategic review.
Given that C&C - for obvious competitive reasons - does not break down the profitability of its various units, it is virtually impossible to do the sum-of-the-parts valuation of the group that Goldman Sachs believes would provide the best outcome for Allied Domecq.
There is little doubt that there would be plenty of bidders for the various bits and pieces, evidenced by the recent Irish distribution acquisitions by the likes of Guinness and Murphy. C&C's own brands - especially the likes of Club, Bulmers and Ballygowan - have a strong franchise and would be attractive to many buyers, while an Irish whiskey brand like Tullamore Dew would fit neatly into many a company's portfolio.
That said, it would be a dreadful shame for the Irish stock market - and the fund managers who constantly bemoan the shortage of quality investment opportunities - if C&C ended up being sold to a trade buyer or broken up. Certainly, breaking up C&C would not be a simple procedure for Allied Domecq, and selling off constituent parts of the company could be protracted. In contrast, a flotation has the added attraction of simplicity.
Of course, if the markets do stay wobbly into 1999, Allied Domecq has the third option of sitting tight until profit multiples rise once again to a level where a C&C flotation is more attractive.
Interesting to see, too, that despite Allied Domecq's avowed focus on global brands, the British giant still found it worthwhile to spend £10£15 million on Bismarck, a German family-owned schnapps producer. That sounds like the sort of deal that a publicly-quoted C&C might be interested in!
