Heineken UK will invest in Galaxy for the long-term

Heineken UK will invest in Galaxy for the long-term

Heineken has said it will invest behind its newly-acquired Galaxy Pub Estate for the long-term and that the deal will be value enhancing from year one.

Earlier today (2 December), Heineken announced that its UK division will acquire Galaxy from Royal Bank of Scotland for GBP412m (US$646m). The brewer's subsidiary, Scottish & Newcastle Pub Co (SNPC), already manages Galaxy's 918-strong estate and has done so since SNPC sold the same pubs to RBS over the years 2000 and 2001.

Once complete, the deal will make Heineken one of the UK's largest pub operators, with 1,380 outlets. However, this comes at a time when many pub groups are looking to cut their estates amid pressure from duty tax rises and stronger competition from retailers.

"This is a bit of a homecoming for us," a Heineken UK spokesperson told just-drinks today. "This deal gives us security of tenure," he said, adding that the brewer plans to invest in the estate for the long term. "I would liken it to renting a flat as opposed to owning one," he said. "If you own a flat, you're more likely to install a new kitchen."

He said that the Galaxy estate consists of many freehold pubs that are oriented towards serving food, a key growth driver for the on-trade. At the same time, he said that the acquisition gives Heineken "a fantastic shop window for our brands".

Heineken, he said, has no plans to dispose of any pubs and expects the estate to be earnings-enhancing within the first year of the deal closing. "We've managed these pubs for 11 or 12 years, so we know them well," he added.

The brewer looks to have bought the estate for a reasonable price, with the deal valued at seven times Galaxy's trailing EBITDA. It will also pay less than the GBP450m paid by RBS to acquire the same pubs over 2000 and 2001.  

The UK on-trade continues to face financial pressure, but some sections of the industry have shown that they can be competitive. This week, Greene King reported half-year operating profits in its retail pub business up by 9.6%, driven by both food and drink sales.  

According to the latest figures from CGA Strategy, weekly pub closures in the UK have come down to 14 per week, compared to a peak of around 52 per week in the first half of 2009. The on-trade research specialist expects the rate of closure to slow further as a new generation of local, food-oriented pubs emerges.

"There continues to be an important role for the great British pub in the UK on-trade," said the MD of Heineken UK, Stefan Orlowski. "This acquisition is a significant vote of confidence in the channel."