Mitchells & Butlers (M&B) has launched an audacious bid for Spirit Group, the managed pub estate owned by Punch Taverns.
M&B proposes that in exchange for funding the bid, private equity firms will take a minority stake in the group. It said it had been approached by such groups looking to take such an interest "at a material premium to the current share price".
In a statement to the Stock Exchange this morning M&B said it believed "significant value through enhanced sales and profitability can be created by integrating Punch's managed pub business into Mitchells & Butlers' operational and brand structure".
The group said it had approached Punch with a view to exploring suitable terms for a deal.
In a short statement issued this afternoon Punch said: "In line with its announcement last month, Punch has been exploring a number of options with third parties including a combination of Spirit with M&B.
"Last week M&B sought clarification from Punch as to a potential combination. Punch continues with these discussions and if appropriate, will make a proposal to M&B."
M&B said it had received offers from private equity firms looking to take a minority interest in the group, and that such investment might be a way of funding the move.
Talks were at an early stage on all fronts, M&B said, and there was no certainty of a deal being forthcoming.
M&B chief executive Tim Clarke has made little secret of 'keeping an eye' on the Spirit estate, and has highlighted the track record of his group's operations versus those of rival managed pub operations.
However the City was not bowled over by the proposed move.
Analyst Douglas Jack of Panmure Gordon said the proposed bid was "likely to be less attractive for shareholders" than Punch's own merger proposals, tabled recently.
"In return for reducing shareholder value, the only difference between this transaction and the one that Punch proposed is that M&B management is retained and that Punch's tenanted/leased business is kept out of the transaction," Jack said.
"It would be ironic if M&B view the latter as a weakness, given that Punch's tenanted/leased earnings have not been downgraded, whereas M&B and Punch's managed pub earnings have," he added.
Punch's shares were up 19.5p at 607.5p, while M&B's stock was trading at 336p, up four pence.
M&B operates around 2,000 managed pubs, while the Spirit estate is made up of around 880 pubs, including the Chef & Brewer chain.
- M&B declined to comment on press reports at the weekend which suggested key shareholder Robert Tchenguiz was looking to oust the group's chief executive Tim Clarke. Tchenguiz claims to speak for around 40 per cent of M&B's investors.