Irish drinks company C&C Group saw its share price jump nearly 9% this week following the announcement it has agreed to purchase the UK cider assets of Constellation Brands. Michelle Russell looks at what the market is saying about the deal.

C&C, the maker of Magners cider, bought the Gaymer Cider Company, which includes UK cider brands Blackthorn, Olde English and Gaymers, as part of a GBP45m deal (US$70m) that is expected to be completed in January 2010.

Analysts say the deal provides C&C with a complete cider portfolio in the UK, while the group expects to achieve GBP3m in annual cost savings through synergies and economies of scale.

Goodbody Stockbrokers, which has a buy rating on the stock, told the Wall Street Journal that the deal is being "very positive" in terms of broadening C&C's market share, especially into the faster growing off-trade category.

"It also removes a competitor from the sector and given that the sector leader in the UK, Heineken, is focusing on raising selling prices and cutting costs, the acquisition of Gaymer should deliver solid EPS growth with upside depending on the level and pace that synergies are harvested," Goodbody said.

Ireland-based C&C is trying to inject more fizz into its cider business, with cider volumes flat for the six months to 31 August.

Gaymers cider volumes for the year ended February 2009 were approximately 1.5m hectolitres — almost twice the size of Magners' current UK volumes. Off-trade volumes, including a number of own label ciders, account for 80% of volumes.

For the year to 28 February 2009, Gaymers generated net sales of GBP64m and EBITDA of approximately GBP5.4m.

No wonder then that chief executive John Dunsmore described the price of the deal as "highly attractive".

"This transaction strengthens our position within the world's largest cider market and broadens the scope of the group's existing cider offering," he added.

For Constellation, offloading Gaymers allows it to concentrate on premium wine, beer and liquor brands with higher growth potential and wider profit margins.

"Although this deal is not big enough to move the needle on our fair value estimate, we are pleased to see Constellation continue to shed some of its lower-margin businesses in order to reposition its portfolio in premium categories, and we expect the firm to use the proceeds to reduce its outstanding debt," the Toronto Star wrote.

For C&C's part, the Dublin-based company said that the deal should add to earnings immediately.

Branding experts believe the acquisition will enable the company to protect the premium positioning of its flagship Magners brand.

Simon Davies, former marketing director of Molson Coors told Marketing Week that the acquisition enables C&C to access the rest of the cider market without "damaging the premium positioning of Magners".

Jamie Lister, director of drinks marketing consultancy Drink Works, said C&C's on-trade distribution combined with Gaymers draught infrastructure could enable Blackthorn to become a competitor to Heineken UK's Strongbow.

In August, C&C announced a deal to buy the businesses of Anheuser-Busch InBev in Ireland, Northern Ireland and Scotland for GBP180m, which included Tennent's lager.

The lager makes up around one in three pints bought in Scotland.

The two deals show that C&C isn't putting all its apples, pears and malt into one basket.

But, Dunsmore himself said earlier this year that if it doesn't succeed in cider "then it's fair to say that C&C as a group won't succeed".

At a time when the UK is enduring the worst flooding in recorded history, C&C has made a gutsy decision to expand its exposure to a product particularly dependent on good weather - cider.

But as shares proved this week, investors are impressed with the news.