The billionaire tycoon, Joe Lewis, has dropped his bid for Mitchells & Butlers, the owner of the All Bar One, O'Neill's and Harvester pub chains, declaring it "increasingly risky" as market conditions have deteriorated.
Mr Lewis's investment vehicle, Piedmont, said yesterday it had withdrawn its 230p-per-share offer for the bar, pub and restaurant company after several months of talks.
Sources at Piedmont, which already owns nearly 23 per cent of M&B, said the market had changed since it first approached the Birmingham-based leisure group with an offer, and the deal looked "increasingly risky". One said: "Retailers on the high street are feeling the pinch and, with the headwinds facing consumer, it is not a pretty picture". He also reiterated concerns about the company at an operational level.
Senior figures at Piedmont believe a recent trading update bore out its views about M&B, although the pubs operator disagreed. At the end of last month, it announced that revenues had risen by 0.5 per cent in the nine weeks to 17 September. Piedmont said at the time that this was "very disappointing" and added: "It highlights concerns about the operational and financial performance of the business."
M&B's shares fell by 17 per cent after yesterday's announcement and closed at 235p last night. Piedmont, which has had a tempestuous relationship with the board of M&B, said it would remain an "active and engaged shareholder" despite failing to buy the company.
M&B was in buoyant mood after its suitor walked away. Its interim chairman, Bob Ivell, said: "The independent directors have been consistent in their view that an offer of 230p would substantially undervalue the company."
The company would now "focus on our growth strategy", he added.
Nigel Parson, an analyst at Evolution Securities, had criticised the 230p-a-share offer as being too low and encouraged investors to hold out for closer to 350p, where the stock traded in January. Last night, he said the collapse of the deal was "good news for shareholders".
The City is now waiting to see if another bidder for M&B will emerge. Analysts pointed towards potential interest from rival operator Greene King and Elpida. Under Takeover Panel rules, Mr Lewis will not be able to return to the negotiating table for six months unless there is a rival bid, or the M&B board welcomes an approach.
Paul Leyland, an analyst at Investec, said M&B "could face a trading perfect storm with insufficient financial discipline". He fears the company will struggle to grow its top-line in the current consumer climate to cover its rising costs. Investors including Piedmont continue to demand a dividend. Yet Mr Leyland said: "At the very least, we see a dividend as highly unlikely without potentially long-term, value-destructive asset sales."
M&B was forced to shelve its search for a new chief executive during the bid process. Adam Fowle quit in March after two years in the job, and Jeremy Blood has been in charge on an interim basis since then. A source close to the company said a recruitment drive would re-start imminently.
M&B is also looking for a new chairman. Turmoil at the business has seen six chairman appointed in just two years. Mr Leyland said the leadership issue would contribute to a "prolonged period of difficult trading".
Piedmont first bought shares in M&B in 2008 from the property investor Robert Tchenguiz – in a move that even it admitted was "opportunistic". Mr Lewis, backed by John Magnier and JP McManus, led a coup last year which saw the removal of the then chairman, Drummond Hall, and the appointment of four new directors.
Analysts at Numis said Piedmont should now be "more motivated to support efforts to rebuild leadership in the company".Reuse content