The prospect of an M&B/Punch merger is changing the landscape of the industry, says Neil Morgan
Can you name one of the few pub groups to report positive trading figures over the three months to the end of January? One that stands out is Mitchells & Butlers (M&B). The pub-restaurant operator reported "resilient" performance for the first 17 weeks to 26 January, with like-for-like sales up 0.7%.
It saw a weak first three weeks of December and strong trading over Christmas and New Year, followed by a satisfactory January to date, with like-for-like sales up 0.2% over the 10 weeks to 26 January.
In the first 30 weeks since the smoking ban started, like-for-like sales in its English pubs not previously converted to non-smoking had increased 0.6%, with food sales up 4.9% and drink sales down 1%.
In a market some describe as the most challenging in 30 years, M&B's performance highlights its effectiveness as a pub operator. But the circa £400m pre-tax hit taken by the firm when it closed a hedging position taken out against its aborted £4.5bn property joint venture with Robert Tchenguiz's R20 Group wrestled headlines away from this solid performance.
While losses may have unexpectedly put the company into play, it is the group's positive sales growth and position as pioneer of food-led pub operations that have led to Punch Taverns quickly putting forward a merger proposal and private equity groups circling with intent.
Punch's proposed merger would create a £3.8bn group owning 10,500 pubs - about 18% of Britain's total. To satisfy local market- dominance issues, analysts say the group would have to sell up to 300 pubs, with 200 more converted from managed houses to tenancies. That would leave it with a 7,500 tenanted/2,500 managed split, with amazing assets.
The merged company would have Punch chief executive Giles Thorley as its new chief executive; Punch finance director Phil Dutton as its chief finance officer; M&B chief executive Tim Clarke as non-executive chairman, and Peter Cawdron as non-executive deputy chairman. Thorley is keen to tap into M&B management talent. He said: "Tim and the M&B operational team add value - they're great operators."
Clarke has repeatedly put across his view that, given the chance, he would squeeze more value out of Punch's managed estate. He might soon get that chance, but not under the circumstances he would have imagined or wanted. Not that the merger is a done deal - QVT Financial, which recently upped its M&B stake to 9%, has come out against the plan, while a counter-bid from private equity players could also materialise.
Any deal looks some way off, with plenty of twists and turns to come in the coming weeks or months. This will also lead to increased speculation about the next moves for other major players in the pub sector. Talk of a merger between Marston's and Greene King is again bubbling beneath the industry's surface.
Whatever the outcome, the prospect of M&B changing hands means the UK pub-sector landscape will be very different by the end of the year.
Neil Morgan is head of
corporate pubs at Christie+Co