Trading Punches
John Waples, deputy business editor of The Sunday Times, examines the Punch flotation.
As the saying goes "all's well that ends well" but there are some lessons that can be drawn from the flotation of Britain's second largest pub landlord Punch Taverns.
Had Punch's adviser Merrill Lynch, which acted as global co-ordinator, pushed the float button two weeks earlier the issue would have succeeded without incident. And Merrill must share some of the blame for the way it was botched. As one source close to the negotiations said: "Merrill saw the train coming in the form of HMV and it didn't do anything about it. The flotation of HMV was a disaster for us; institutions felt that they had been ripped off and they were going to be highly sceptical of the issues that followed in its tracks."
Similarly, little was done to minimise the impact of a highly negative article in the Financial Times which was published just days before the first day of trading.
Throughout the run-up to the float, Punch's financial advisers had ordered a low key "no comment stance" but the strategy backfired.
A large part of Punch's reputation had been built on the way it marshalled press opinion in its protracted battle against Whitbread for the Allied Domecq pub estate.
Hugh Osmond, Punch's founder, and the group's financial public relations firm Citigate Dewe Rogerson helped secure the upper hand in the contest by winning the support of the financial media. However, this time round Punch was forced to behave like Howard Hughes, a role it is not accustomed to acting.
It was therefore not surprising that the press would look for someone who would talk and with a pub portfolio the size of Punch it was not going to be hard to find a handful of disgruntled lessees that felt aggrieved.
The mistake of Merrill was not to allow Punch to tackle the criticism head on.
Within the pub industry it is common knowledge that freehouses can arrange better beer deals. The simple reason is the owners have often staked more than £200,000 to own their pub, whereas tied publicans take on less personal risk and pay around £20,000 a year. As a result they lose out on the supply contracts. It's not rocket science to explain and Punch should have fought its corner better than it did.
Punch is now into its second week of trading and the shares are well up on the reduced issue price of 230p. As The Publican Newspaper went to press, they stood just shy of the original target range of 250p to 300p. Investors including Texas Pacific, Colony Capital and CVC have decided to keep their stakes for the time being.
Punch boss Giles Thorley must now convince the market that he has a growth strategy and also address the issue of how to provide a clean exit for his venture capital backers.
Following a series of securitisation issues everybody involved with the company has already made a pile of money and Thorley's job is to prove there is plenty left in the pot for shareholders. But at least he has given himself the chance to do it. Two weeks ago it looked like he had pulled over into the hard shoulder.
Punch countdown to flotation
May 1 - The company announces it will float 40 per cent of the company, in a target price ranging 250-300p, and a value of between £620m and £744m.May 10 - Music retailer HMV Group makes a disastrous stock market debut with the share price plummeting in the ensuing days after launch.May 15 - The Financial Times prints a damning article the day before the shares are due to be priced, criticising the tenanted business model. May 16 - Punch pulls its float having failed to generate enough support in the original price range, before returning seven days later with the reduced offer of 230p.May 22 - Punch sells 30 per cent of the company on the stock market, raising £174m, and giving it a value close to £600m.May 29 - As this article was posted, the shares approach the initial target price range of 250-300p.
Related articles:
Better late than never as Punch moves up (23 May 2002)
Punch Taverns float resurfaces (21 May 2002)
Punch pulls flotation (16 May 2002)
Pubcos hit back at FT-Punch story (15 May 2002)
Punch Taverns' flotation draws closer (30 April 2002)
Punch announces intention to float (15 April 2002)
