Punch Taverns proposes merging with Mitchells & Butlers
Punch Taverns has proposed merging with Mitchells & Butlers (M&B) to form a pubco nearly two thirds larger than its nearest rival.
In a statement this morning Punch admitted what was an open industry secret, that it submitted outline terms of a possible merger to the board of M&B last Friday to create a group with more than 10,000 pubs.
Punch said its proposal "envisages a merger pursuant to which Punch and Mitchells & Butlers shareholders would each own 50 per cent of the merged company and would therefore equally participate in the benefits of the combination.
"In addition, M&B shareholders would receive a cash payment of £175m."
The new look company, if it were to gain shareholder and regulatory approval, would see current Punch boss Giles Thorley as chief executive, Punch finance director Phil Dutton as chief financial officer, M&B boss Tim Clarke as non-executive chairman and Punch's non-executive chairman Peter Cawdron as non-executive deputy chairman.
Other senior executives and board members would be "drawn from both companies reflecting the expertise within Mitchells & Butlers and Punch's respective operations".
Punch said the merger terms and structure were "compelling" to all parties.
There was "substantial strategic rationale in combining the two businesses, including opportunities for operational synergies in the managed pub business and through a reduction in central costs".
Punch concluded its proposal was "attractive in terms of value, speed and deliverability".
However analysts expressed concerns that M&B shareholders, while willing to look at such a deal, would be unable to exit at level they felt comfortable with.
Panmure Gordon's Douglas Jack said: "Robert Tchenguiz's R20, which owns a quarter of M&B equity, is unlikely to welcome an all-paper offer that is below its average in-price, transferring M&B assets under strong management that would resist short-term value-extraction techniques."
Mark Brumby of Blue Oar Securities noted that "a merger with Punch would not provide M&B's shareholders with the two things that they arguably most desire, 1) an exit and 2) a premium price - indeed many shareholders would be looking at an overall loss on their investment, which they may find hard to stomach.".
Hamish Champ, City editor & business editor writes: "No surprises here, really. Giles Thorley and the whole executive team at Punch Taverns have coveted M&B like the proverbial ox. The group sees ample opportunity to boost its existing managed pub estate with some of the best pub brand names in the business and will move heaven and earth to get this deal done. Meanwhile, a merger gets M&B out of a jam of its own making, while retaining the operational angle many within and beyond the group presumably crave, notwithstanding the concerns of some shareholders, vis-a-vis exit levels. Punch's comment that it can deliver a deal at speed is certainly on the money - and might be a bit of dig at M&B's rather conservative way of doing things too. And once a 'done deal', Giles can sail off into the sunset, proud of a job well done, that of creating and running the largest pubco in the country."
