Brewer Young's to merge with rival

By Simon Moon
Updated: 07:02 EDT, 23 May 2006

SOUTH London brewer Young's is to merge with East Midlands rival Charles Wells and move production from Wandsworth to Bedford.

Young's historic Ram Brewery will be sold to property developers in a deal believed to be worth around £80m.

Young & Co is set to sign a joint venture with Bombardier bitter brewer Charles Wells. The venture, in which Wells will hold a 60% stake, will take control of both groups' brewing, wholesaling and distribution. It will be known as Wells & Young's Brewing Company.

The companies said the merger will create a major new force in UK brewing, operating from a modern brewery in Bedford, with a growing portfolio of speciality cask ales and lagers and sufficient scale to compete at a national level.

Key brands will include Wells Bombardier English Premium Bitter, Young's Bitter, Wells Eagle IPA, Young's Special, Waggledance, Kestrel Lager, Kirin Ichiban Japanese lager and Jamaican Red Stripe Lager. Wells & Young's will also be the sole UK distributor of Corona Extra, the world's fourth largest beer brand, which originates from Mexico.

Young's chief executive, Stephen Goodyear, said the merger would bring to an end a period of uncertainty. The sale of the 5.5 acre Ram Brewery site and the nearby Buckhold Road offices would unlock substantial capital to continue to build Young's pub estate and enhance shareholder value.

'Importantly, Young's beers will continue to be available in all Young's pubs and to all Young's customers. We believe this is the best outcome for the company, for customers, for employees and for shareholders,' he said. Paul Wells, managing director of Charles Wells added: 'The merger of our respective brewing interests creates a significant new force in UK brewing, with strong and growing cask ale brands, operating out of one of the UK's most modern breweries.'

A question mark has hung over Young's 175-year-old Ram Brewery site since 2003 when Wandsworth town centre was identified as a key area for regeneration by the Mayor of London and the local authority.

Young's says it conducted a comprehensive assessment of the development potential of the Wandsworth sites and its future brewing options. Today, in a statement to the stock exchange it said: 'Throughout this process the board has received strong interest in the potential of the Wandsworth sites from property developers. In addition . . . it is clear that the age, layout and location of the Ram Brewery made it uneconomic to invest in improving the structure and efficiency of its operation.'

In the 12 months to April, Young's brewed more than 167,000 barrels of beer including 106,000 barrels of owned beer brands, of which Young's Bitter accounted for 46,000. In the financial year ended September 2005, Charles Wells brewed around 300,000 barrels. Young's has a managed and tenanted estate of 208 pubs and inns and Charles Wells has a managed and tenanted estate of 245 pubs.

In the year to 1 April, Young's brewing and wholesale business generated earnings before tax of £3.2m and an operating profit before exceptionals of £0.9m on sales of £50.4m. The cost savings for the continuing Young's retail business following the transfer of the wholesaling operations from the Ram Brewery site, together with improved beer purchasing terms, are expected to add at least £2.5m to annual profits from October 2006.

Charles Wells' brewing and brands businesses are not operated as separate entities, but the company estimates in the year ended September 2005 that they generated a profit of £2m on sales of £128m.

Following the completion of taste matching and product quality trials over the summer, Young's will transfer all its brewing and wholesale activities to the new company by 1 October. Distribution and warehousing will remain at Wandsworth until its relocation to a new satellite depot in late 2007. All remaining Young's staff and corporate functions, including the managed houses and tenanted estate managers, will be relocated in 2007 to a new head office in Wandsworth.

Wells & Young's will be setting up a new, fully-funded final-salary pension scheme for employees transferred to the new company.