Bass backs Punch in pubs battle

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The Independent Online
PUNCH TAVERNS, the pub company led by Hugh Osmond, will today announce it has secured the backing of the leisure giant Bass in its battle to beat Whitbread's pounds 2.45bn offer for 3,500 Allied Domecq pubs.

The pub company will confirm that Bass has agreed to spend pounds 1bn buying at least 700 pubs from Punch if it succeeds with a cash offer to trump the paper bid from Whitbread.

Punch will issue a statement to the Stock Exchange saying it is preparing an offer for the pubs, to be financed by a mixture of debt and equity. A formal offer, expected to be in the range of pounds 2.7bn to pounds 3bn, will be launched before the end of this week.

Bass will have the right to pick off the prime sites from Allied Domecq's estate of managed pubs, giving it enough new outlets to fill its expansion needs for the next three years. The exact number will depend on Bass's ability to achieve a return of at least 15 per cent from its pounds 1bn investment.

The Bass link-up will step up pressure on Allied Domecq's executives to revoke their recommendation of the Whitbread bid. Under the terms of the Whitbread offer, Allied Domecq is required to pay a penalty of pounds 25m if the board withdraws its recommendation.

Directors may also seek a postponement of the vote on Whitbread's offer at an egm called for 2 July. The Office of Fair Trading winds up its examination of the deal, which will give Whitbread control of nearly 10,000 pubs, on 15 July.

Allied Domecq yesterday hinted for the first time that it would be receptive to an offer from Punch.

"If you will forgive the analogy, we have been made pregnant by Whitbread but that doesn't mean we are going to get married," said a spokesman.

Bass, which agreed to come in on the deal after an approach from Punch's advisers, wants to pick up well-known branded pubs such as the Firkin chain. The pubs would then be refitted and re-branded as part of Bass's existing brands, which include All Bar One, Harvester and O'Neills.

As part of its bid, Punch is preparing to offer shareholders a loan-note alternative to the cash offer, protecting some shareholders from a big capital gains tax liability. A separate scheme to avoid a corporate tax liability for Allied Domecq is being prepared by Arthur Andersen, one of Punch's advisers.

In a statement, Whitbread said a cash offer of pounds 2.7bn would be "well below the level which analysts have estimated is the full value of the Whitbread offer". The deal between Bass and Punch was "a temporary expedient to strip out value from the [Allied Domecq] assets."