M&B's executive merry-go-round

Anyone following the row between Mitchells & Butlers (M&B) and its expat billionaire shareholder Joe Lewis in recent weeks could be minded to recall the words of Lady Bracknell in The Importance of Being Ernest.

"To lose one parent, Mr Worthing," the dowager boomed at the hapless hero of the play, "is unfortunate. To lose two looks like carelessness."

Noting that M&B has been put through the mill by two demanding and potentially powerful shareholders in as many years, one might see parallels with Oscar Wilde's witty observation.

The managed pub group's stormy relationship with property tycoon Robert Tchenguiz is well documented. Suffice to say, in attempting to accommodate Tchenguiz and his ambitious plans to create an 'opco/propco' vehicle out of M&B the group ended up losing hundreds of millions of pounds in interest rate swaps and well-regarded executives falling on swords.

But of course in an open market, where individuals and institutions can buy and sell stakes in businesses freely, companies cannot choose their bedfellows. M&B had little choice but to play ball with Tchenguiz, even if it stuck in senior executives' craws at the time. They had to accommodate him as they would have had any investor holding close to a quarter of the company. But there is little doubt management was hardly ecstatic with the way things were panning out.

The multimillion-pound losses M&B incurred when interest rate swaps connected to the proposed joint venture with Tchenguiz were eventually wrapped up cost the group's finance director Karim Naffah his job and, eventually, that of then-chief executive Tim Clarke.

When Tchenguiz, who saw much of his own fortune wiped out in the global financial meltdown of 18 months ago, eventually sold his 23-odd per cent stake in M&B to Lewis one might have thought the group would breathe a sigh of relief. Yet the most positive spin one City analyst could put on the move at the time was that it made the "best of a bad situation".

The company's management, including Clarke, would "be glad to see the back of Tchenguiz", the analyst went on as the deal went through. "But they'll be wondering what Lewis's plans are."

Indeed they might have been. They were, it seems, until last week's AGM, with M&B's current chief executive, Adam Fowle, professing himself to be similarly baffled by the tactics of Lewis's investment firm, Piedmont, which represents his interests as regards M&B.

Simmering tensions

From what was a reasonably encouraging start in 2008 the relationship between Lewis and M&B soon became an uneasy one, particularly after the swap losses crystallised. Since the end of last year relations have been at rock-bottom. Corporate invective from either side has been met with equally vigorous counter-claim, the issues of the M&B board's independence and its competence being key elements in the argument.

M&B upped the stakes when it sent a dossier to City watchdog the Takeover Panel, claiming certain shareholders were acting 'in concert' to exert a hold over M&B's affairs.

Piedmont will have felt its hand was strengthened when last month the panel threw out M&B's claims, though some politicians took umbrage. Labour MP John Grogan tabled an early day motion, effectively supporting M&B, which to date has been signed by 27 of his Parliamentary colleagues, while Vince Cable, Lib Dem finance spokesman, wrote to the government asking it to look into the panel's remit.

Piedmont appeared undaunted by such Westminster goings-on. Following the panel's decision spokespeople for Lewis have pointed to the divergence between top-line sales and pre-tax profit as evidence of M&B's profligacy and poor return for investors.

Some analysts have said this is a tad unfair, pointing out that M&B's costs have been high, particularly in food and staffing areas. While this is a positive for the company, smaller shareholders, likely to be missing a dividend until the end of next year, might not be so easily persuaded.

Business as usual

Last week's AGM saw Simon Laffin replaced as chairman by ex-Debenhams chairman John Lovering, who is to spend 60 days assessing the group's operations. So, in effect, Lewis and his friends at Elpida won. yet all sides acknowledge the consumer landscape is changing and even Lewis, through Piedmont, acknowledges M&B has an operational excellence that is equalled by few, if any, in the industry.

M&B's current bosses sought to reflect this very fact in an analyst seminar more than a fortnight ago. Highlighting a drive to build on six key retail brands - Crown, Premium Country Dining, Harvester, Vintage Inns, Toby Carvery and Sizzling Pub Co - Fowle said the aim was to grow the number of said outlets, currently standing at just shy of 900, by between 50 and 100 per cent.

Expansion would come through single-site deals (circa 400), internal conversions (circa 150) and around 700 sites acquired through sector consolidation, Fowle said. The presentation, repeated at the AGM for the benfit of smaller shareholders, was well enough received, but failed to set the market alight.

One analyst, Douglas Jack of Numis Securities, offered up an interesting scenario that harked back to an earlier tilt at a rival's managed pub operation. "Capital is the limiting factor," Jack said. "If this and relations with shareholders can be resolved it is highly probable that Punch Taverns' managed estate will be M&B's primary target."

Never mind the recent game of management musical chairs; the strategy of creating a strong, value-driven, food-led pub estate in M&B, backed by quality assets and a team of top-notch staff and managers, is unlikely to alter for the foreseeable future.