Managed pubs operator Mitchells & Butlers (M&B) is looking at selling a stake in the business to bolster its balance sheet, according to reports.
The company has been in play since it crystallised a £274 post-tax loss by closing a hedge linked to its aborted property deal with Robert Tchenguiz¹s R20. It is now looking at selling a minority stake to a private equity firm like CVC or Blackstone, the Sunday Telegraph has claimed.
The private equity firms would provide a loan that would later convert in a stake in M&B. The company began a review of its strategic options after it revealed its hedge losses at the start of the year. Punch Taverns has already tabled a merger proposal.
M&B's problems stem from an interest rate hedge it took out to protect a proposed joint venture property deal with Robert Tchenguiz against rising borrowing costs on its debt burden. Problems arose when banks pulled out of the property deal in the wake of the credit crunch.
M&B was advised that the situation was a 'hiccup' and the debt market was likely to return. However, debts spiralled as interest rates fell - M&B's hedge had bet against interest rates rising. At a stormy Annual General Meeting in January, there were calls for chairman Roger Carr to follow the example of finance director Karim Naffah and step down. Carr is to step down after M&B's review is complete in May.
Panmure Gordon analyst Douglas Jack said: "M&B's management does not appear enthusiastic over Punch's merger proposal, even though the deal values M&B equity at 437p per share (395p equity and 42p cash)."
"We believe that Punch, like almost a third of its shareholder base, is becoming less enthusiastic on the potentially 20% earnings dilutive transaction. If no deal emerges, Punch's shares should recover and M&B's valuation should fall into line with the peer group."