The Wolverhampton & Dudley Breweries, PLC

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The Wolverhampton & Dudley Breweries, PLC

P.O. Box 26, Park Brewery, Bath Road
Wolverhampton
West Midlands WVl 4NY
United Kingdom
Telephone: (+44) 1902-711-811
Fax: (+44) 1902-429-136
Web site: http://www.fullpint.co.uk

Public Company
Incorporated: 1890
Employees: 12,569
Sales: £505.6 million ($789.3 million) (2002)
Stock Exchanges: London
Ticker Symbol: WOLV
NAIC: 312120 Breweries; 721110 Hotels (Except Casino Hotels) and Motels; 722410 Drinking Places (Alcoholic Beverages)

The Wolverhampton & Dudley Breweries, PLC, popularly known as Wolves, is the United Kingdom’s largest integrated regional brewer and pub operator. The company operates two breweries in Wolverhampton and in Burton on Trent, with a focus on ales. Wolves’ brands, grouped under its W&DB Brands unit, include the national bestseller Marstons’ Pedigree, as well as Banks’ Original—its historic brand—Banks’ Bitter, and Mansfield Bitter. Like most of the United Kingdom’s brewers, Wolves also operates its own distribution network, in the form of more than 1,600 managed and tenanted pubs. Tenanted pubs—in which the company holds the property and leases the business to an independent operator-tenant—make up the largest share of the company’s estate, with 1,035 pubs in 2003. These pubs are grouped under subsidiary The Union Pub Company. The company also directly owns and operates 595 managed pubs, through its Pathfinder Pubs subsidiary. Wolves’ pubs operate under several brand formats, including Bostin’ Locals, as well as a small number of urban-located Pitcher & Piano pubs. Since the beginning of the 2000s, Wolves has focused its retail operations on the community pub format, selling off nearly 1,000 city center and other locations. Pathfinder generated more than 55 percent of the company’s 2002 revenues of £505 million, while W&DB Brands produced 25 percent of sales. Listed on the London Stock Exchange since 1891, Wolves is led by Chairman—and great-great-grandson of the company’s founder—David Thompson, and CEO Ralph Findlay.

Midlands Brewing Start-Up in the 1890s

Wolverhampton & Dudley Breweries traced its origins back to the second half of the 19th century. In 1875, a Mr. Banks founded the Park Brewery on Wolverhampton’s Chapel Ash Street on the site of an Artesian well. Said to have enjoyed living the good life, Banks built up a number of debts, in particular to his malt supplier, George Thompson, who owned a malt wholesale business as well as the Dudley & Victoria Brewery nearby in the town of Dudley. Thompson offered Banks an extended line of credit, which was secured against his business. When Banks disappeared suddenly, Thompson took over the heavily indebted brewery.

Thompson merged the Banks brewery business with his own, refinanced its debt, and then added a third brewery, owned by Charles Colonel Smith, the Fox Brewery, located in Wolverhampton. Thompson named the newly merged business Wolverhampton & Dudley Breweries, and took it public that same year. The following year, however, the business faced a major setback when fire destroyed its Dudley brewery. Nonetheless, the company rebuilt the brewery.

Taking the lead of the company was Thompson’s son, Edwin John. The Thompson family was to play a prominent role within the company throughout the century to come, and by the beginning of the 21st century, the fifth generation of the Thompsons remained in the company’s top management. Yet the Thompson family’s shareholding of the company itself remained minor, particularly after the company began offering its stock to employees.

By the end of its first decade, Wolves, as it became popularly known, had expanded the Park and Fox site, which then became capable of brewing the entirety of the company’s ale production, including its main ale brand, Banks. Wolves also had begun building up its pubs estate, and by 1898 included 56 freehold sites and five tenanted sites.

In the new century, Wolves began acquiring new breweries. Between 1909 and 1928 it bought up a number of breweries, including North Worcestershire Breweries, John Robinson & Sons, Kidderminster Brewery, and the Robert Allen Brewery. The company’s next brewery purchase came in 1942, when it acquired Julia Hanson & Sons and its popular Hanson’s branded ale. In 1960, the company purchased the Broadway Brewery as well. These acquisitions went especially to boost the number of the company’s pubs—prior to the 1990s, Britain’s pubs tended to be owned by its breweries, and dedicated to their brands.

In the mid-1960s, however, Wolves joined a drive by a number of brewers, including Allied, Bass, and others, to take over the distribution of the Romanoff vodka brand, forming the partnership Vodka Romanoff Ltd. in 1965. The companies then began selling the bottled vodka product through their pubs and licensed premises. Yet brewing remained the company’s core activity; in 1972, the company began a new expansion of its main Park Brewery. At the same time the company added a new line, when it began producing the popular Irish lager brand Harp under license. By then the company, under the leadership of fourth-generation Edwin Thompson, had sales of more than £15 million.

Growth Through the 1980s

Wolves stepped up its growth through the 1970s, opening a number of new pubs and starting a large-scale capital expenditures program. The company also reached a new co-partnership agreement with the then-independent Harp Lager to introduce the brand on tap to its pubs. Wolves also launched a line of canned-only beer brands, which proved a popular success. By 1975, the company’s sales had shot up past £26 million.

In 1976, Wolves acquired the U.K. licensing rights to popular French lager brand Kronenbourg, which were successfully added to its pub lineup. The company also began construction of a new packaging plant, completed in 1977. The continued buildup of the company’s network of managed and tenanted pubs enabled the company to book continued sales growth through the decade, as turnover topped £56 million by the end of 1979. By then, Wolves had strengthened its involvement with Harp, taking a 10 percent stake in the Harp Lager marketing and production consortium formed by Arthur Guinness and Green King.

Despite the recession of the early 1980s, Wolves’ sales, backed by the company’s commitment to capital expansion, continued to rise, nearing £81 million by 1982. By then, Wolves had established itself as one of the top regional brewers in the United Kingdom and a dominant force in its core Midlands region. The company’s emphasis on mild ale brands—popular in its region but virtually unknown in the heavily populated south—restricted its further expansion somewhat. Nonetheless, the company had by then built up a network of more than 700 “tied” pubs for its products.

Wolves returned to the acquisition trail in 1983 when it launched a takeover bid for Birmingham-based Davenports Brewery, a move that would have given Wolves a solid base of 125 pubs in Birmingham. The company managed to acquire nearly 24 percent of the company, yet was ultimately thwarted in the attempt when a trust controlling nearly 30 percent of Davenports rejected the offer. By the following year, Wolves itself appeared to be a potential target for a takeover attempt, notably by one of the fast-growing national brewers. Yet a Monopolies & Mergers Commission’s (MMC) rejection of a similar takeover attempt in 1985 effectively barred the national groups from acquiring regional leaders such as Wolves.

Instead, David Thompson, who became the company’s managing director in 1986, led the company on its own expansion drive. In 1988, Wolves bought 84 pubs, including 61 tenancy pubs, from rival group Watney Mann. The purchase helped to strengthen the company’s presence in the eastern and southern Midlands.

Maintaining the Regional Tradition in the New Century

In 1989, Britain’s MMC struck a new blow at the market dominance of the country’s national brewers by requiring brewers to choose between brewing or pub operations (of more than 2,000 pubs). The move favored the growth of regional brewers, including Wolves, in particular by signaling a vast restructuring of the industry and the sell-off of large swaths of pubs across the country. As a major regional, Wolves was especially well placed to boost its own portfolio of pubs. At the same time, the MMC ruling also included a provision that pubs open their sales to so-called “guest” beers for the first time.

Wolves stepped up to the acquisition plate again at the beginning of 1992, paying £18.7 million to acquire Hartlepoolbased Cameron’s Brewery, as well as its 51-pub chain, from Brent Walker. That acquisition made Wolves not only the number one brewer in the Midlands, but the top regional brewer in all of the United Kingdom. In May of that year, the company took a different tack toward growth by signing a joint distribution agreement with rival brewer and pub operator Marstons, which placed both companies’ beers in each other’s pubs.

Company Perspectives

Our Objectives: For customers of Pathfinder Pubs: To deliver excellence in managed community pubs —with superior retailing capability in well situated pubs of a high standard offering value for money to all. Of the Union Pub Company: To stand out in the tenanted pub sector —for the quality of our pubs, our tenants, the attractiveness of our agreements —and our straightforward approach. Of W&DB Brands: To be regarded as the experts in ale —offering leading ale brands, with the best local services. For employees: To be “FIT”: to operate fairly, with integrity and transparency. For shareholders: To deliver growth in cashflow and shareholder value.

Wolves had made a foray beyond its brewing and pub ownership operation, moving into hotel operations in the early 1990s. The company built up a chain of eight hotels, under the Crown & Raven name. In 1995, however, the company refocused on its core business, selling the Crown & Raven chain to the Regal Hotel Group.

Through the mid-1990s, Wolves joined an industrywide trend in building up strong branded pub chains, a move exemplified by the JD Wetherspoon group. Wolves rolled out a number of pub chains and branded concepts, such as the Fast Eddies sports bar and the Last Word café bar concepts, as well as Milestone, Taverns, Taphouses, Poacher’s Pocket, and Varsity pub brands. Not all of the company’s new bar concepts were a success, however, and at the end of 1997 the company dropped a number of its money-losers and scaled back its offering to just the Milestone, Varsity, and Poacher’s Pocket concepts.

Instead, Wolves began stalking new takeover prey. At the end of 1998, the company found its first target, Marstons, launching a £262 million takeover bid. The takeover quickly turned hostile, and Marstons fought back, using a so-called “Man” defense to launch a countertakeover bid for Wolves. In the end, Wolves won the day, and bought up Marstons for £292 million in February 1999. The acquisition gave it a new brewery in Burton on Trent, boosted its total pub holdings past 2,000, including the small but growing pub chain Pitchers & Piano, and, of importance, gave it a Marstons nationally prominent ale brand, Pedigree. The company immediately began selling off some of its new pubs, reducing its total to around 1,800.

Wolves’ next target came in September of that same year, when it bid £230 million to take over Mansfield Brewery. This time the bid succeeded without a fight, for a final purchase price of £361 million—including more than £100 million in debt. The addition of Mansfield gave Wolves its fourth brewery, and boosted its pub total back up to nearly 2,300.

Yet Wolves’ aggressive expansion, coupled with a discounted pricing drive during the year, left it weakened financially. By mid-2000, David Thompson had been moved out of the managing director’s position, to the more ceremonial position as chairman. Instead, the company created a new CEO position, naming former company Finance Director Ralph Findlay to the spot.

Findlay set to work integrating the company’s new acquisitions, including regrouping its tenanted pub holdings under a new subsidiary, The Union Pub Company. Yet the company’s financial difficulties now made it a vulnerable takeover target. The first offer came in August 2000, when Noble House made a £400 million bid for the company. Wolves rejected that bid, and instead concentrated on a review of its operations—both in its brewery and pub holdings.

A new suitor for the company turned up in May 2001, when the Pubmaster group launched its own takeover offer. Wolves fought back—and in the end beat out the Pubmaster offer with a margin of just 3 percent among shareholder votes. As part of its defense, Wolves had announced its intention to sell off some 170 pubs, including its nationally operating Pitcher & Piano pub chain.

The company made good on part of that promise, selling off 44 pubs to the Royal Bank of Scotland at the end of 2001. This sell-off was part of a larger effort by the company to refocus itself as an operator of community pubs—as opposed to urban and city center pubs. Although the company ultimately decided to keep the Pitcher & Piano chain, because it could not find an adequate purchase price, it went ahead with its pub disposals, trimming down to just 1,600 pubs by 2003. Wolves also shut down its Camerons and Mansfields breweries, shifting production back to just two core plants. The company also sought to boost its position as a premium ale specialist, suggesting that it would drop its Harp brand distribution business.

While these moves caused a drop in Wolves’ turnover—which shrunk back to £505 million in 2002—the leaner company had prepared itself for a stronger, more profitable future. As Findlay told the Birmingham Post: “We now have one of the highest quality tenanted estates in the country.” The company also continued to ply the strength of its main brand Pedigree in the fast-growing retail channel, launching a liter-sized bottle in June 2003. Meanwhile, Wolves had not entirely abandoned the prospect of new acquisitions, acknowledging that it had entered—ultimately fruitless—talks to acquire Eldridge Pope in May 2003. For the time being, Wolves appeared content to draw the rewards of being the United Kingdom’s leading independent regional brewer.

Principal Subsidiaries

Pathfinder Pubs; The Union Pub Company; W&DB Brands.

Key Dates

1875:: Park Brewery is founded by a Mr. Banks in Wolverhampton.
1890:: George Thompson takes over Park Brewery, merges it with his own Dudley Brewery and Fox Brewery, forming Wolverhampton & Dudley Breweries (Wolves), which goes public that year.
1908:: Wolves makes its first acquisition, of North Worcestershire Breweries, and then acquires John Robinson & Sons, Kidderminster, and Robert Allen by 1928.
1942:: Julia Hanson & Sons and its Hanson’s brand is acquired.
1960:: Broadway Brewery is acquired.
1988:: Wolves buys 84 pubs, including 61 tenancy pubs, from rival group Watney Mann.
1992:: Wolves acquires Cameron’s brewery and pub chain.
1998:: Wolves launches a hostile takeover attempt of Marstons.
1999:: Wolves acquires Marstons, and then acquires Mansfield Brewery later that year.
2001:: Wolves fights off a hostile takeover attempt by Pubmaster, then closes two breweries.
2003:: After shedding nearly 1,000 pubs, Wolves restructures as a community-focused pub operator.

Principal Competitors

Allied Domecq PLC; SABMiller PLC; Whitbread PLC; Carlsberg-Tetley Brewing Ltd.; Guinness Ltd.; Greene King PLC; CI Traders Ltd.; Fuller Smith and Turner PLC; Daniel Thwaites PLC; Young and Co.’s Brewery PLC.