Bottom Line: Greenalls doubts

INSTITUTIONAL investors in Greenalls, the pub operator, are right to have concerns about the price their company is paying for JA Devenish, the smaller West Country publican.

It is most unlikely that the groundswell of opposition will be enough to block the deal at Thursday's special meeting, but that does not mean this little rebellion should be ignored.

Greenalls should really be looking to get 15 per cent out of Devenish to satisfy shareholders.

Including the assumption of pounds 40m of debt, Greenalls is paying pounds 250m for it. To get 15 per cent on pounds 250m, Greenalls will have to suck out pounds 37.5m of earnings.

As an independent, Devenish made pounds 9.5m after tax in the year to 30 September. In these terms Greenalls' task to make the acquisition pay is, to say the least, ambitious.

Greenalls says earnings will improve in year one, thanks to cost savings. But to satisfy its institutional shareholders it must not stop there.

Other aggressive acquirers should note the warning - make sure you can justify the terms.

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