UK: Och-Ziff hedge fond takes £25 million stake in Cobra Beer

One of the US hedge funds that provided financing for sports tycoon Malcolm Glazer's takeover of Manchester United has become a major investor in Cobra Beer, which claims to supply lager to 90% of Britain's 6,000 Indian restaurants, The Guardian posted July 17.

Founded by Lord Bilimoria, Cobra does not brew its own beers, but has expanded rapidly by licensing production and building from a loyal customer base in the UK restaurant market, which continues to generate almost half its sales. This latest deal values the business at £80m.

The hedge fund, Och-Ziff, has been handed warrants over an undisclosed substantial minority stake in Cobra. In return, it has loaned Cobra £25m in PIK - or payment in kind - notes, and will take a seat on the board. Similar notes were used to finance Mr Glazer's takeover of Manchester United. They typically carry punishing rates of interest, though payments are deferred, often for several years, until the notes mature. Och-Ziff's UK investments are believed to be overseen by Anthony Fobel after he joined from private equity house CVC Capital Partners last year.

The hedge fund backed a management buyout at budget retail chain Peacocks last December and later backed Robert Tchenguiz's failed takeover of pub group Mitchells & Butlers.

Lord Bilimoria, who retains a majority holding in Cobra, said half the money from Och-Ziff would be used to buy back preference shares and the remainder earmarked for investment. "Over a three-year horizon we want to step up growth as much as we can. We are grooming ourselves for flotation ... with June 2009 as our target.

"The vast majority of our sales still come from the UK - and there is still huge growth potential there - but five years from now I wouldn't be surprised if half our sales volumes come from India." He said he eventually planned a brewery in Hyderabad, where he was born.

In the UK, he wants to increase draught beer sales, currently in about a third of Indian restaurants, and to develop relationships with major bar chains and supermarkets. A television advertising campaign is planned for the autumn.

Karan Bilimoria started Cobra in 1989 when he was a 27-year-old accountant and £20,000 in debt, inventing the brand to sell to London Indian restaurants. The lager was initially brewed in Bangalore, but in 1997 production was transferred to Bedfordshire brewer Charles Wells. Today, it is also made in Poland, Belgium and India.

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