Since the first UK lockdown began last year, there have been very few chances to honour the great British tradition of going to the pub. Unfortunately, such social settings bring people into close contact, something that would accelerate the spread of Covid-19. This has meant that pub chains have struggled to stay profitable, with many venues closed for months at a time. Over the past year, the Marston’s (LSE: MARS) share price is down around 4%. But after losing a considerable amount during the March 2002 crash, it’s up 400% from the lows. How is it possible that it’s not far off its pre-crash price, despite the issues it still faces ?
Mergers and (potential) acquisitions
Firstly, it’s important to note that Marston’s isn’t just a pub operator. Alongside the 1,700 pubs and bars is a brewery business and a hotel chain. So although pubs have been closed, revenue has still been coming in from alternative sources (albeit not as much as it would have liked).
After the crash took the Marston’s share price down to around 20p, it has bounced higher for several reasons. Take the merger of the brewery business with Carlsberg UK. Marston’s took a 40% stake in the newly formed company, with a much-needed cash boost received of £273m. By combining the business with a heavyweight like Carlsberg, the rewards could be large (and the risk shared).
This move was seen as a positive, with the Marston’s share price moving higher after this news in May. This also coincided with a slight easing of lockdown in the UK, boosting the opportunities for the pubs arm of the business. However, it should be noted that even with this boost, the share price didn’t breach the yearly high of 104p.
Another bounce in recent weeks has been seen due to several bids to buy the company from private equity firm Platinum Equity. Last week, Marston’s rejected a £693m offer, saying that it undervalued the business. The offer valued Marston’s shares at 105p, when it was trading around 100p. Having a bidder is good news, even though the offer price is lower than average share price over the past few years.
What are the risks?
Although the share price has moved higher since March, it’s not been all good news to report. It may have had the cash injection from the Carlsberg merger, but Marston’s still had to cut over 2,000 jobs in October as footfall to its pubs was weak even when they were allowed to open.
Another risk could be if the bidding from Platinum Equity becomes a hostile takeover. This could be the case if Marston’s doesn’t accept future offers but Platinum insists on the move. I think this is very unlikely, but it’s a potential risk that potential investors like myself need to be aware of when considering the Marston’s share price.
From my point of view, I think I’ve missed the boat. For those who bought last summer, congratulations. It was a risky buy back then, given the unknown length of lockdown ahead. I do think this summer will be better for Marston’s pub and brewery arms, but I struggle to see a continued move higher in the share price after the move we’ve already seen. As such, I’m not going to buy.
