Rumours swirl about biggest pub deal ever

by MA Reporter

The biggest pub deal ever is still on the table but it may be Mitchells & Butlers rather than rival Punch that takes over Spirit, if City rumours last week are borne out.

The share price of M&B bounced up 8p, with some analysts also speculating that it might team up with Punch Taverns to launch a joint bid for Spirit.

To add to the confusion, further rumours circulated that all three groups might be a take-over target for any combination of the others.

Commenting on the story that Punch might be preparing to buy Spirit, analyst Mark Brumby at Oriel Securities, said: 'Stranger things have happened, and reports like this in the press are rarely completely wrong. But at an estimated value of £3bn, this would be the biggest pub deal ever.

Brumby pointed out that Punch would not wish to run the managed houses permanently, but that moving 1,200 or so from the 2,000 estate to tenancy would be risky.

'The Spirit estate is already distilled down and it seems unlikely many would be best run as tenancies. And finding 1,200 tenants at the drop of a hat would not be easy. Existing managers who know they are going to be fired would lack incentive. Like-for-likes could suffer, and the whole thing go wobbly if not handled correctly.

Brumby added: 'For Punch to find £3bn would involve a large say £1bn-plus equity issue for a company whose risk profile has risen. To sell on assets immediately would obviously mitigate this.

Brumby said he believed Punch had approached Spirit, and that the deal could work 'though many observers lack the imagination to see how.

He added: 'Admittedly, imaginative and risky are the same word spelt differently and Punch could be accused of taking venture-capital risks in the public arena.

'However, they've done it before and it's worked out very well for them!