Critics question M&B's jv

Management at Mitchells & Butlers (M&B) has come in for sharp criticism in the wake of the decision to put its joint-venture property company, to be owned in partnership with Robert Tchenguiz, on hold "until debt markets have improved".

The company wanted to crystallise the value of its pub freeholds by placing around 1,300 of them in the joint venture and returning money raised to shareholders.

Last week, the plan was halted for the time being because the two lenders wanted M&B and Tchenguiz to stump up more equity. Most of the criticism has centred on a decision by M&B to hedge against interest changes, which currently leaves the company with a £60m post-tax deficit. Analysts and city commentators have been left bemused by the outcome.

Mark Brumby, analyst at Blue Oar Securities, said: "The hedge was put in place to increase the probability of a successful transaction. As it was, the transaction was not successful and it has not been explained as to why the hedge was not made contingent upon the deal going ahead.

"In making a naked investment, M&B has effectively put shareholders' money on the deal happening and interest rates rising in the future. The deal did not go ahead and rates may or may not rise.

"On the 'I've got some petrol so I'll buy a car' principle, while we think it unlikely that this will happen, M&B may well be tempted to do a deal, any deal, simply because it has a hedge in place with which to protect the resulting debt from increases in rates." Analyst Simon French, of Numis Securities, said: "We believe this damages the credibility of all parties involved and we do not expect there to be a short-term solution." Mail on Sunday commentator Simon Watkins said: "The débâcle smacks of a management that, whatever its skills at running pubs, is out of its depth in financial markets." A statement by M&B said: "Discussions are continuing with R20 to enable the transaction to be implemented subject to debt markets improving."

Tchenguiz buys more M&B

Robert Tchenguiz has increased his stake in M&B by 4% to 20% in the wake of the collapse of his joint-venture property plan with the company.

The Sunday Telegraph claimed the move is Tchenguiz "gambling that he can wait out the turbulence in the credit markets and renegotiate the deal in a few months but he wants to keep the pressure on M&B's management".

Panmure Gordon analyst Douglas Jack asked: "Why is Tchenguiz buying the shares for around 700p given M&B's worsening operational, equity and debt-risk premium? The answer is that Tchenguiz's property stake should compensate him for paying a premium for the shares.

"When he takes M&B"s freeholds, his gain will be other shareholders' loss. Investors are at risk of becoming minority shareholders in a company with a new agenda that is not in their best interests."