Fuller’s: Capital’s expansion plans could ‘dilute quality’ of estate

Earlier this week Capital revealed positive trading results for the year ending 26 March 2011​ and expansion plans to grow its estate by 11 to 16 pubs over the next two years, following an agreement with its bank to increase its debt by £5m.

However Fuller’s believes such a rapid growth strategy would require Capital to issue further equity, a move the brewing company claims has ‘considerable risks associated with its execution’ that could have a ‘negative impact on valuation over time’.

It said: “Fuller’s believes that this will result in Capital’s existing shareholders either having to invest additional equity or be diluted further by new equity investors going forward.”

Fuller’s reaction comes days after Capital Pub Company rejected a £53.9m takeover bid ​which itself claimed severely undervalued the business. Capital subsequently deemed it ‘inappropriate’ to engage further with Fuller’s on the move.

Fuller’s has since added that it would still like to continue talks with Capital.

It backed its offer of 200p per share by claiming the EBITDA multiple of the offer was similar to that of other recent deals, such as the acquisition of Realpubs’ 14-strong estate by Greene King for £53.1m last month.

Reply​

Clive Watson, chief executive of Capital said in response to Fuller’s statement this morning: “Fuller’s has made an indicative offer proposal at 200p and is seeking to justify an inadequate value for the Capital business by questioning the Group’s growth potential.

"Shareholders have no formal offer to consider from Fuller’s and the performance of Capital’s management and business as outlined in its final results statement speaks for itself.

"The Capital Board have made it clear that there is no intention of engaging with Fuller’s on the proposed indicative offer terms."