Activist investor Engine Capital urges C&C Group to explore sale

Activist investor Engine Capital sent a letter to the board of C&C Group on Monday in which it urged the Magners and Bulmers owner to explore strategic alternatives for the drinks company, including a potential sale.

Engine Capital, which owns a stake of just under 5% in C&C, said the company has been "a perennial underperformer and today is deeply misunderstood and undervalued by the market because of a combination of structural and self-inflicted problems".

It continued: "Given the company’s underperformance, poor track record of execution, discounted valuation, and CEO succession risks, we believe it is time for the board to consider a different path forward and explore strategic alternatives for the company.

"In our view, a sale could deliver returns far superior to the standalone value of the company, especially considering the time value of money and the execution risks of attempting to reverse self-inflicted issues."

It urged C&C to strengthen the board with necessary financial and M&A expertise, arguing that it was critical to have individuals in the boardroom "who possess the relevant financial skillsets and a shareholder mindset to assist the company".

It said the board should add new directors with "strong financial backgrounds - particularly in M&A, capital markets and capital allocations".

Engine Capital also called on C&C to initiate a strategic review process to monetise the company. It said C&C makes for an attractive acquisition target given the quality of its assets.

"We suspect the optimal strategic acquirer of C&C’s assets is a scaled company with a global, established brand that could optimise marketing expenses, benefit from UK manufacturing capabilities, reduce general and administrative expenses, benefit from procurement savings, and leverage C&C’s leading distribution businesses to accelerate the growth of its own branded and higher margin products," it said.

"Regardless of whether C&C’s assets are sold together or transacted separately, a combination with one or multiple strategic acquirors will create significant synergies."

Finally, it said the board should incentivise management to ensure the best possible outcome.

"We encourage the Compensation Committee to consider a transaction bonus pool for critical employees and the potential acceleration of unvested securities, as well as potential change of control payments if an executive is let go within 12 months following a transaction," Engine Capital said.

"We believe instituting this type of compensation framework will go a long way toward calming and motivating the relevant employees."