Mark Leftly: Big two put frighteners on M&B investors

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The Independent Online

Outlook Given that Mitchells & Butlers owns Harvester, perhaps the group's then-chairman, John Lovering, should have treated fund managers to some early-bird specials on the outskirts of a provincial town, like one of the company's six eateries in-and-around Bournemouth.

However, being used to nosh a touch classier than that provided by the pubs and chain restaurants in M&B's portfolio, which also includes Toby Carvery and All Bar One, Mr Lovering instead fine-dined at the exclusive Mosimann's club in Belgravia back in 2010.

The former Debenhams boss vowed to his audience of around a dozen institutional investors that he would "normalise" the group's troublesome share register. He also outlined a two-year plan that seemed to suggest he was aiming to get the heavily indebted M&B's stock price back above a fiver – or at least 420p, when he clarified his comments to The Independent on Sunday a few months later.

The best part of three years later and Mr Lovering is long gone, investors are still scared off by a register that sees two major shareholders seemingly poised to take M&B out fairly cheaply at any minute, and the price has not even reached 350p over the past 12 months.

In today's interim management statement, M&B's chief executive, Alistair Darby, admitted that "trading has slowed" since the new year, though a third of the group's bars, pubs and restaurants did break their sales records over Christmas. Debt is still at £1.8bn, when M&B is worth only around £1.2bn.

Langton Capital's analyst Mark Brumby reiterated the point that "the nature of M&B's share register continues to some extent to overshadow the group's trading performance". This underplays the drag of having the billionaire Joe Lewis, who has previously tried to buy out M&B for less than £1bn, and Elpida, a vehicle owned by the Irish horseracing tycoons John Magnier and JP McManus, owning nearly half the company.

The Takeover Panel has previously rejected M&B's claims that the two parties might be acting in concert, and a source close to the company insists the board is now convinced that is the case. The problem is most existing and potential investors think, rightly or wrongly, that there is too much risk the two could one day band together and take out M&B on the cheap.

This feeling has only been exacerbated by the disclosure earlier this week that the vehicle of another racehorse owner, Derrick Smith, now holds a 3 per cent stake in M&B. In 2011, that vehicle, Smoothfield Holding, was confirmed to be acting in tandem with Elpida, meaning that the three investors own more than half of M&B.

That brings up the prospect of the billionaires being able to buy M&B through a scheme of arrangement, which means they would snaffle the company with no premium.

It doesn't matter that Elpida and Mr Lewis are not working together. The fact is other investors are worried that they could. For some, the wounds of what happened at bingo hall operator Rank are still fresh.

In 2011, Guoco, the Hong Kong-based investment company of the Malaysian tycoon Quek Leng Chan, was forced to make an offer for Rank under takeover rules, having built up a stake of more than 40 per cent. Minority shareholders complained they had been squeezed out, forced to accept a cheap bid that undervalued their stock and led to the bizarre situation that Rank is still partly floated on the Stock Exchange.

Although it would be understandable if Mr Lewis and Epsilon do not see the need to clarify their positions again, it's difficult to understand how M&B can again be a FTSE 100 powerhouse unless Mr Lovering's two-and-a-half-year pledge to sort out the register is finally met. Investors are simply too worried that the ownership of the group is concentrated in so few hands. It's about time that M&B's management picked one final – sorry for the cliché – bar-room brawl to bring this saga to an end.