An unhappy ending for suppliers that have backed the expansion of Cobra Beer, the struggling premium lager brand founded by Lord Karan Bilimoria: on Friday evening, Cobra entered a so-called ‘pre-pack’ administration. This controversial process involves the business being immediately bought back, in this case by a joint venture between Lord Bilimoria and brewer Molson Coors – but the unsecured creditors, who allegedly are owed about £75m, end up with nothing. A regrettable episode for one of the UK’s most famous entrepreneurs…
In truth, Cobra’s problems have been brewing for some time. Although the business has kept growing – annual sales are estimated to be almost £200m – it has never managed to make a profit in its 20 years of existence. According to its most recently published results, it lost £13m in 2007. Long marketed as being less gassy than rival lagers, it seems that its profits were equally lacking in fizz.
Administrator PwC blamed the company’s current problems on the downturn, which has supposedly reduced demand for premium lagers - the theory presumably being that drinkers are switching to cheaper triple-strength homebrew instead. But since Cobra sales are apparently still growing, it looks as though Bilimoria’s decision to focus on top-line growth by racking up more and more debt (presumably with one eye on a future sale) was the most significant factor. After all, being leveraged up to the eyeballs isn’t exactly ideal at the moment.
To be fair, Bilimoria has been trying to avoid this outcome. As the extent of Cobra’s woes became apparent, he tried to sell the business to one of the big brewers – but after the wave of recent M&A deals in the sector, none of them had the thirst for it, even at a relatively knock-down price. He then started cutting costs, shedding about two-thirds of the company’s 150-strong workforce (including his chief exec Adrian McKeon), while trying to get his creditors to sign up to a Company Voluntary Agreement (which would at least have left them with something). But when a key supplier vetoed the deal, he had little choice but to opt for the pre-pack.
The deal will leave Molson Coors (brewer of Grolsch and Carling) with a 51% stake in Cobra, in return for £14m of its hard-earned, while Bilimoria himself hangs onto the rest and will continue as chairman. Secured creditors will get paid in full, but unsecured creditors will lose all their money – estimated by the Times to be about £75m. ‘We had no choice but to go down this route,’ Bilimoria told the paper. ‘I feel gutted that the unsecured creditors aren’t going to be able to be paid.’ Presumably not as gutted as them...
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