Company of the Week: Whitbread

WHITBREAD'S shares were the biggest gainer of the week in the FT-SE 100 index, rising 8 per cent after the brewer agreed to buy Allied Domecq's UK pubs for pounds 2.4bn. It will allow the company to cut costs as it adds Firkin and Big Steak Pub to its own chains to become the UK's largest pub operator. However, a rival bid, most likely from Punch Taverns, could foil the agreement.

"This is just the beginning. Whitbread is going to have to fight to get them," said Ben Maitland, an analyst at Sutherlands. "It's good news for Allied as it means they've got at least one offer on the table."

Shedding the 3,500 UK pubs allows Allied to focus on its Ballantine's scotch, Beefeater gin and other drink brands to catch up with the market leader Diageo. Allied's shares rose 4.5 per cent.

Punch Taverns, a privately held tenanted pub operator, has said it plans a rival offer. Punch said the Whitbread offer was "too low" and criticised Allied for entering exclusive discussions with Whitbread before exploring interest elsewhere.

Other potential bidders include Bass and Nomura International, currently the UK's largest pub operator. Officials from Nomura and Bass declined to comment.

Following the sale, Allied Domecq's chief executive, Tony Hales, plans to step down after eight years at the top and make way for a new management team led by finance director Philip Bowman. Mr Bowman said that as chief executive he will drive Allied's brands harder and may shed smaller liquor businesses that account for some 20 per cent of liquor sales.

For Whitbread, buying the pubs helps eliminate some of the competition that has been depressing prices and driving up promotional costs as pub owners seek to win back customers turned frugal by a slowing British economy.

Whitbread plans to shed its brewing unit after the acquisition to comply with UK regulations. Whitbread chief executive David Thomas said a spin- off was the most likely solution.

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