COMPANY OF THE WEEK: Allied Domecq

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The Independent Online
THE BATTLE for Allied Domecq's pubs heated up last week when Punch Taverns Group, a closely-held pub operator, boosted its cash offer for Allied's pubs to pounds 2.85bn in an attempt to thwart rival Whitbread's efforts to buy the business.

The bid is worth 272 pence per Allied share and is 20 per cent higher than Whitbread's original all-stock offer of pounds 2.4bn. Whitbread responded by increasing its own offer to pounds 2.877bn in cash and shares. If Whitbread's share price rises it will be worth much more. Allied will decide tomorrow between the two existing bids.

The contest between Whitbread, Britain's second-largest pub company, and Punch for the 3,500 pubs is expected to spark consolidation in the industry. Allied Domecq, partly owned by the US investor, Warren Buffett, wants to focus on its spirits brands, including Ballantine's whisky.

While Allied can discuss offers other than Whitbread's, it has an exclusivity agreement with the company that prevents it from negotiating with or selling its retail business to other suitors until after 30 September. Breaching that agreement could leave Allied facing a pounds 25m penalty if it chooses to recommend Punch's offer to shareholders.

Punch's financing includes backing from an investor group that includes the billionaire investor George Soros and is led by Texas Pacific Group, a US private equity company that owns 70 per cent of Punch.

Punch was formed in 1997 when Hugh Osmond, who developed Britain's Pizza Express chain, and Roger Myers, founder of Pelican Group, a restaurant firm, bought 1,455 largely tenanted pubs from Bass.

Whitbread proposed to swap shares in Whitbread for shares in Allied Domecq, so that neither investors nor Allied will have to pay capital gains tax on the transaction. Punch has said Allied shareholders can opt for a guaranteed loan instead of cash to avoid tax, and that it has received tax clearance on its bid.

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