E-Malt.com News article: United Kingdom: Cobra Beer UK left by its CEO as the sale process is blocked by price issues

Adrian McKeon, Cobra Beer’s chief executive, has left the company founded by Lord Bilimoria amid speculation that its UK business is about to be swallowed by Molson Coors, The Times posted on April, 27.

The Indian unit has reportedly attracted Wilbur Ross, a US investor.

Mr McKeon joined Cobra in August 2007 after two years as managing director of Beam Global Spirits & Wine UK, part of the American drinks group that owns Jim Beam bourbon and Canadian Club whisky. His appointment allowed Lord Bilimoria to move up to the role of chairman and focus on its strategic options.

Lord Bilimoria spent much of last year discussing a possible sale of a 30 per cent stake to drinks groups including Diageo and SABMiller, but the talks came to nothing as the putative bidders balked at the asking price. In November he appointed Rothschild to advise on a “strategic partnership or sale in order to achieve the full potential of the business”.

The peer is understood to have been hoping to get between £180 million and £200 million for the company, but the sharp fall in British beer volumes is expected to result in total proceeds well below that level.

Another issue that has affected the sale process is Cobra’s mounting losses. While its core business supplying Indian restaurants, where it has almost 50 per cent of the market, continues to perform well, it has sought to buy market share in the pub and retail sectors with low pricing, while at the same time spending tens of millions of pounds on marketing. According to the sale memorandum, it reported underlying 2008 losses of £15.9 million and is forecasting losses for the next three years.

It admits in the memorandum that its focus has been “on the top-line rather than profitability”, with net sales forecast to rise from £34.1 million last year to £73.6 million in 2011. The group admits that it has spent about £40 million on marketing the brand since its inception in 1990, but argues that the investment has positioned Cobra as one of the top premium lagers.

One drinks industry expert said that the resultant haemorrhaging of cash had made a sale of the company a matter of urgency. He said: “Cobra is a strong brand in the ethnic restaurant sector, but in other sectors it faces competition from the big boys. It has over-extended its volumes and marketed heavily — that is a business model that is unsustainable.”

Lord Bilimoria, who has flirted with the idea of an AIM listing, owns 64 per cent of the company, with the rest being held by Och-Ziff, the investment firm, employees and other investors.

Lord Bilimoria, the son of a general in the Indian Army, founded Cobra after coming to Britain to study law at Cambridge and becoming dissatisfied with the fizzy lagers served in the Indian restaurants that he frequented.

He qualified as an accountant with Ernst & Young, for which he worked until he was 27, and, after dabbling in various ventures, decided to develop a less gassy beer for the curry market.

Having devised a lager with the taste that he required, he set about selling it to curry houses. He once recalled: “We had a battered old 2CV that held 15 cases of Cobra exactly. You could see the road through the floor. When we went to restaurants, we would drive the car a little ahead, so they couldn’t see the delivery vehicle”.

Nowadays, Cobra is sold in 6,000 restaurants in the UK, with a market share of about 47 per cent of the ethnic restaurant sector, ahead of rivals including Kingfisher and Bangla. It is also sold in 6,000 pubs, bars and clubs.

Lord Bilimoria, who became an independent crossbench peer in 2006, is reckoned by the Sunday Times Rich List to be worth £80 million, based entirely on his holding in Cobra Beer. The accuracy of that valuation will be tested in the next few weeks, when the business is sold, although the entrepreneur is hopeful that, in the event of an outright sale, he will be able to remain involved.

In December, he declared: “Ideally, I’d love to be able to carry on with a role in the business and keep a small share.”


28 April, 2009