Punch splits managed and leased divisions after strategic review

Punch Taverns has confirmed it is to split its leased and managed pub businesses into two separate companies.

The move, which was flagged at the weekend, came as the pubco revealed the findings of its lengthy strategic review, led by chief executive Ian Dyson and is in part a response to the group's £3bn debt crisis.

Among the key findings the review concluded that the group's current structure and financial position were "barriers to realising value".

As well as demerging its operations, Punch concluded that it would seek to have a leased estate of around 3,000 high quality pubs, once the reorganisation was completed. It also said it would retain its 50 per cent stake in drinks business Matthew Clark.

The demerger of the two operations will cost £30m and is expected by the end of the summer. It would "provide choice and liquidity for all investors to choose to invest or not in the managed or leased businesses", the group said.

Punch said that following the demerger it would "engage in some dialogue with bondholders with a view to optimising the capital structure. At this stage, it is not possible to be categorical about the timing, scope or content of such dialogue.

"In the meantime, we will continue to provide the required financial support to the securitisations to enable the leased business to build on the progress it has made," it said.

Dyson said he believed there was a "significant value creation opportunity" at Punch, with immediate upside in its managed operation and what he called "longer term upside" in its leased business. "We do not believe that either opportunity can be maximised within the current group structure," he said.

"Spirit will be positioned to deliver market leading sales and profit growth and to expand with the aim of becoming the UK's leading managed pub operator.

"Punch will be positioned to drive long term value by downsizing to a core estate of around 3,000 pubs with the aim of becoming the UK's highest quality and most trusted leased operator," he added.

The review of the business came to several conclusions:

Punch said its current strategy was "not sustainable", and that structural change was required to drive value.

It said its managed business required investment and development to speed up its operational turnaround, exploit the growth potential of the eating out market and to grow its estate.

Punch said its leased business needs to be repositioned to a core of around 3,000 high quality pubs and reorganising into core and turnaround divisions.

There were limited synergies between the managed and leased businesses "and therefore limited incremental operational costs associated with separating them".