Inntrepreneur brewing up buyout

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The Independent Online
MANAGERS at Inntrepreneur Estates, jointly owned by Grand Metropolitan and Fosters Brewing, are believed to be attempting a pounds 250m-plus buyout of 1,250 of the company's pubs.

One venture capitalist, who declined to be named, said: 'Grand Metropolitan have shopped it exhaustively around the City.'

Others said they had heard the gossip, but had not had sight of the deal. There is strong talk, though, that the base for a buyout deal is being constructed by Hambro Magan, the merchant bank.

Financial backing is also believed to have been secured from one of the main clearing banks, and several venture capital groups.

Brewing analysts in the City have also become aware of the speculation, but were unable to name the management involved in the buyout negotiations.

They thought it unlikely that any of Inntrepreneur's eight-strong board, which is equally represented by directors from Grand Met and Courage, were part of the buyout team.

The board includes Sir Allen Sheppard, chairman and chief executive of Grand Met, and Mike Foster, chief executive of Courage.

Any negotiations, however, will have had to address the sensitive issue of pub values, which have fallen sharply during the recession.

Beer consumption has dwindled, and the pub property market has been flooded as the big brewers have scrambled to comply with the Government's Beer Orders.

Additionally, pub values have been depressed because hundreds of landlords who bought into pubs at the top of the property boom have been forced out of business by high interest rates. The average value of an Inntrepreneur pub, using the company's last accounts, is in excess of pounds 300,000. However, it is understood the outlets that the management is attempting to buy are worth around pounds 200,000 each.

Grand Met declined to comment. However, Inntrepreneur said: 'Discussions are under way to sell around 1,250 pubs. All tenants and lessees likely to be affected by the sale have been contacted.'

Inntrepreneur has either to sell the pubs, or free them of any tie to comply with the Beer Orders, which become law a month from today. The Orders were laid down following a three-year review of the industry in the late Eighties by the Monopolies and Mergers Commission.

The company was formed in March 1991, out of the breweries-for-pubs swap deal struck between Courage, owned by Fosters, and Grand Met.

Some 8,450 pubs, almost equally split between Grand Met and Courage, were pooled into the Inntrepreneur group. That total, under an agreement with Peter Lilley, then Secretary of State for Trade and Industry, had to be reduced to 4,350 tied-pubs by the time the Beer Orders took effect.

Nearly 1,100 pubs were immediately ring-fenced for disposal when the two estates joined together. A further 500 have been sold, and 720 leased free-of-tie.

The breweries-for-pubs deal was dealt with outside the general conditions laid down in the Beer Orders, which required that the big breweries had to free-of-tie half of the number of pubs that they owned above a ceiling of 2,000.

A buyout is just one of several options believed to be under consideration. The contracts on the pubs have a kick-in clause timed for 1 November, which will put them at an arm's length trading distance from Grand Met and Courage.

Money from a disposal, in whatever shape or form, would probably be used to reduce Inntrepreneur's borrowings, last stated at about pounds 1.2bn.

Inntrepreneur's estate also includes 556 Chef & Brewer pubs, leased out on 20-year contracts to Grand Met. They have to be counted in the total number of tied pubs that Inntrepreneur can have tied.

(Photograph omitted)

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