Open Letter to Young & Co
Guinness Peat Group PLC
18 June 2001
GUINNESS PEAT GROUP plc
LETTER TO THE CHAIRMAN OF YOUNG & CO'S BREWERY PLC
Blake Nixon, UK Executive Director of Guinness Peat Group
plc ('GPG') has written to Mr John Young, Chairman of
Young & Co's Brewery PLC ('Young'), proposing the
privatisation of the non-family shareholdings. GPG
currently holds 25.2% of Young's 'A' ordinary share
capital.
The full text of the letter and the associated resolution
proposed for the forthcoming Young AGM are attached.
TEXT OF LETTER FROM BLAKE NIXON TO JOHN YOUNG, CHAIRMAN
OF YOUNG & CO'S BREWERY PLC.
Dear Mr Young
'We cannot continue to operate the company
and act as if Queen Victoria was on the throne'
Morrells Brewery*
July 1998
*Morrells operated as a family owned brewery and pub
estate in Oxford since 1570 and is now extinct as a
consequence of value erosion in the 1990's.
Over the past four years Guinness Peat Group ('GPG') and
Young & Co.'s Brewery ('Young') have been engaged in
debate on three principal issues:
(1) Young's inadequate return on capital;
(2) the Board's lack of public accountability for
performance; and
(3) the Board's failure to acknowledge any
responsibility for the delivery of shareholder value
in a timely manner.
It is generally accepted that Young's inadequate return
on capital is a consequence of the Brewery's excessive
production costs per barrel. This means it operates at a
loss and that the Pub Estate fails to obtain the usual
profit margin on its beer purchases. GPG has previously
proposed a number of strategic initiatives to address
this inadequate return, principally the purchase of, or
joint venture with, another brewery, or the acquisition
of another 70 or 80 pubs. Either of these actions would
increase the barrelage through the Brewery sufficiently
to improve its economics to an acceptable level. Not
only has the Board failed to make any significant moves
in this regard, it has not even condescended to state
clearly a credible strategy to rectify the return on
brewing assets.
The voting structure of Young's share capital, which
precludes a majority from removing directors, has
shielded the Board from public accountability for the
Group's chronic underperformance.
The Board has repeatedly failed to acknowledge any
responsibility for the delivery of shareholder value in a
timely manner. Indeed, it has given no indication over
the past five years that it is in the least concerned
that Young's shares have consistently sold at a
substantial discount to the undeniable value of the
Group's assets. GPG's proposals at the last three AGM's
for a simplification of the Company's share capital, were
put forward with the aim of the Board becoming
accountable to all shareholders and, as importantly,
reversing this serious under valuation. Despite
overwhelming support for these proposals from the non-
family shareholders, the Board has refused to take any
action in this direction.
This enforced inaction by the Board places the
independent directors in a rather invidious position.
Young's performance can only be remedied by either taking
vigourous steps to correct the economics of its brewing
operations or, in extremis, closing the Brewery. It is
plain the Young family is impeding the Board from
pursuing either of these courses, whilst hiding behind
the great heritage of the Company as their rationale.
The propriety of this can only be described as
questionable. Whilst having the power to appoint the
entire Board, the 'B' shareholders only own 33.7% of the
share capital and therefore are exposed to only 33.7% of
the estimated £4m-£5m underperformance caused by the
Brewery's poor economics. We fail to see how, when they
are prevented from adopting a timely and effective
strategy to eliminate the problem, the independent
directors feel they can adequately represent the public
shareholders, who are forced to bear 66.3% of this
shortfall.
Against this background, the clearest acceptable solution
to the current predicament is a privatisation of the non-
family shareholdings. GPG therefore proposes that the
Board develop a scheme of arrangement under which the 'B'
shares (other than those held by Young family Board
members and the Ram Brewery Trust) and the 'A' shares are
cancelled with holders repaid £10 per share, and the non-
voting shares are cancelled with the holders repaid £7.50
per share. These prices are the minimum at which GPG
believes the shares would trade if the Brewery were
managed competently and, furthermore, represent a
significant premium to share prices in recent times.
Securitisation of the outstanding Young's pub portfolio,
a now well-established method of financing, would enable
the Group to raise sufficient finance for such a scheme,
including the redemption of debentures and any other debt
finance. The scheme would allow the Ram Brewery Trust
and those of the Young's family who are Board members to
continue to operate the Brewery as they saw fit without
the majority shareholders being forced to fund its
losses.
We believe our scheme represents an attractive resolution
of the present totally unacceptable state of affairs. As
such, I strongly commend the scheme to all shareholders.
Yours faithfully,
Blake Nixon
UK EXECUTIVE DIRECTOR
WORDING OF RESOLUTION PROPOSED FOR THE YOUNG & CO'S
BREWERY PLC ANNUAL GENERAL MEETING
Young & Co's Brewery PLC (the 'Company')
Ordinary Resolution
THAT
this meeting requests and recommends that:
the Board of Directors formulate proposals for the
Company to be transferred to the sole ownership of
the Young family and connected persons by means of
cancelling and extinguishing:
(a) all the issued 'A' ordinary shares of 50p
each (the 'A Shares') and repaying to the
holders thereof the sum of £10 per A Share;
(b) all the issued 'B' ordinary shares of 50p
each held by persons other that the
trustees of the Ram Brewery Trust and
those directors of the Company who are
members of the Young family (the 'Relevant
B Shares') and repaying to the holders
thereof the sum of £10 per relevant B
Share; and
(c) all the issued non-voting ordinary shares
of 50p each (the 'Non-Voting Shares') and
repaying to the holders thereof the sum of
£7.50 per Non-Voting Share
by means of a scheme of arrangement under section
425 of the Companies Act 1985 of the Company (the
'Scheme') and that the Scheme and the resolutions
required to give effect to the Scheme be submitted
to the requisite class meetings, general meetings
and court meetings, such meetings to be convened as
soon as practicable following the passing of this
Resolution.
Enquiries:
Guinness Peat Group plc 020 7236 0336
Blake Nixon, UK Executive Director
Square Mile BSMG Worldwide 020 7601 1000
Kevin Smith/Becky Jewers
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