Mitchells & Butlers halts R20 joint venture

Shares in Mitchells & Butlers (M&B) fell 30p this morning after the managed pub group announced it was putting its £4.5bn property joint venture with Robert Tchenguiz's R20 on hold until "debt markets improve".

The managed pub group had announced in May that it was to create a 50:50 joint venture with R20 to unlock value for shareholders - including Tchenguiz - while retaining a degree of control over operational and asset aspects of the business.

The venture was to be based on the sale of a 50 per cent stake in a £4.5bn property deal comprising approximately 1,300 pubs and £240m of rent.

However in a statement to the stock exchange today M&B said it "believes that it is now not possible to execute the joint venture due to the current disruption of the debt markets which has resulted in a significant widening of credit spreads".

Movements in the debt markets meant that M&B's post-tax loss on certain hedges against changes in interest rates would have been £60m.

The group said it was still talking to R20 but that it was "impossible to predict" when the joint venture would go ahead.

The City's reaction to the announcement was mixed. Mark Brumby of Blue Oar Securities said: "Whilst the deal may get done, for M&B, which was ever reluctant to treat with Tchenguiz, this may be a get-out-of-jail opportunity."

James Ainley, an analyst at JP Morgan, said he expected the deal to go ahead but that it was "unlikely to happen before September".

Panmure Gordon's Douglas Jack said the announcement raised doubts about M&B's strategy and direction: "The deal, the rational for the deal and entering a hedge before raising the related debt, leaves the credibility of management in question.

"It therefore suggests that the risk profile of this company is even worse than we have suggested and that the downside risk to its rating is even greater."

M&B also updated the market on trading, noting that like-for-like sales in the 11 weeks to July 28 were up 3.5 per cent, versus a 3.2 per cent rise in the 16 weeks to May 12, while univested sales were up 2.2 per cent.

It said it was too early to draw any definite conclusions from the limited period of the English smoking ban, although there had been a "marginal movement in the mix towards food". It also noted the bad weather in recent weeks would have impacted sales.

M&B's shares were trading at 717.5p, down four per cent.