A very public affair

The City's short-termism has forced a number of publicly-listed pubcos to turn private, as John Porter reports.

The City, they say, can be a harsh mistress. Keep her happy with consistent increases in sales and profits, and she'll indulge you. But as soon as you disappoint her, things can quickly turn very unpleasant.

It's a view many chief executives of publicly quoted pub companies would identify with the high levels of anxiety which the City can instill in otherwise rational men was highlighted recently when the angry boss of a major pub operator phoned The Publican newsdesk, subjecting a reporter to a lengthy tirade about the negative impact a particular story was going to have on his share price. In fact, the share price actually increased considerably over the following week - admittedly largely on the back of a positive trading statement from another operator in the same sector of the market.

All of which probably proves nothing except that if we could predict how the City is going to react in any given circumstance, we'd all watch the progress of our lucrative share portfolios from the deck of a yacht moored in the harbour off Monaco.

Exiting the stock market​

However, the question of whether the advantages of a stock market listing outweighs the hassle factor is high on the industry's agenda. Two pub groups which have suffered a roasting from analysts over the past year, Yates Group and Eldridge Pope, are exiting the stock market.

Yates is about to complete its management buy-out (MBO) backed by US private equity group GI Partners, while long-standing takeover target Eldridge Pope has succumbed to pub deal veteran Michael Cannon, who has persuaded the board to recommend his 171p-a-share offer, valuing the business at about £42.3m.

For the Yates's management team, led by chief executive Mark Jones (pictured)​, the MBO marks the end of a tough period in its relations with the City. Converting the 100-strong Yates chain from the old wine lodge format to the new 21st century design was inevitably going to take time and was, the company insisted, starting to pay off.

But the City is all too often in the business of quick fixes rather than long-term strategies, and after a couple of reports of like-for-like sales declines, the Yates Group share price suffered.

Private equity backing for the MBO was a lifeline. Mark explains: "GI Partners will take a five-year view, which is a much longer term position than the City's."

Eldridge Pope, led by chief executive Susan Barrett (pictured below)​, is another company which has reason to rue the City's short-termism. Promoted into the hot seat from the post of finance director last June, Susan faced generating a recovery in pub sales at a time when Wolverhampton & Dudley Breweries had just walked away from a possible offer, CI Traders was looking at the books, and Mr Cannon was already starting to build a stake.

She implemented a strategy which included a cost-cutting drive, as well as the sales of underperforming pubs and the former brewery site.

However, with the board now recommending the Cannon offer, she says of the recovery strategy: "It's not that it hasn't worked... but it has taken longer than we would have liked."

With Mr Cannon set to bring his own management team into the business, Susan will be leaving Eldridge Pope. However, some of the founding family may still go along for the ride.

The Pope family tragically lost its most high-profile link with the business when Christopher Pope, former chairman and managing director, died earlier this year.

However, Michael Cannon's company, SDA, has indicated that Eldridge Pope shareholders will be able to take an equity option rather than cash, something which will appeal to some family members.

This wasn't an option for the Yates family which, through the MBO, ends its links with the business founded by Peter Yates - although not before a consortium of family members forced an increase in the offer. In general, private equity investors look for a clean break with the past.

Stamped out a rumour​

However, some operators are happy to ride out the tough times. JD Wetherspoon, another former darling of the stock market, recently felt the sharp side of the City's tongue but was quick to stamp on a summer rumour that its management team was considering going down the MBO route.

Jim Clarke, the high street operator's finance director, said: "We believe the financial flexibility our public listing gives us outweighs any disadvantages." Speaking at the company's annual results presentation, he hinted that Wetherspoon might shortly be making the most of that flexibility to fund an acquisition.

And with Spirit Group likely to be the next major operator moving from venture capital ownership to a stock market listing, the private versus public argument is set to run and run.