Britain's embattled pubs sector sparked into life yesterday after Fuller Smith & Turner said it had made a £53.9m cash takeover proposal for the Capital Pub Company, its smaller London-based rival.
The 200p a share indicative offer – which contains several preconditions, including giving Fuller's limited access to Capital's books – represents a 29 per cent premium to Capital's closing price on Thursday. Fuller's made the approach in April after a proposal of 175p a share was rebuffed in March.
But Capital said the bid undervalued the business and was "without merit". The company has not ruled out asking the Takeover Panel to order Fuller's to either table a hostile bid or walk away.
Despite this, Peel Hunt's analyst Paul Hickman said Capital was now "in play" and that a takeover could succeed at 220p. Barclays Capital said the earnings multiple of the Fuller's proposal was slightly lower than Young's paid with its £60m takeover of rival Geronimo. Shares in Capital jumped 23 per cent to 191.5p.
Fuller's, unusually, did not buy a single new pub last year but has moved into acquisition mode this year. Last week it unveiled buoyant recent results raising a glass to profits of £29.3m, up 10 per cent.
The company also said it had increased its borrowing facilities despite slashing net debt by £19.2m to £88.5m. Analysts say it has considerable headroom to increase its debt and the company is understood to have secured the backing of its banks before making the proposal.
While Fuller's is seeking an agreed deal it said in its statement that it was prepared to drop any, or all of its preconditions, which could lead to a hostile bid. Management is understood to be "frustrated" at Capital's refusal to engage with them.
The chief executive Michael Turner said: "Their strategy is very similar to ours. The estate has been carefully put together and is well run. We think their shareholders need to know about this offer and would find it very attractive. We think everyone would be winners from a deal like this. The staff because they would have a long-term future and the shareholders because the offer is sensible and generous."
Fuller's called Capital's expansion plans "risky" and warned that it would have to tap shareholders for cash to pull them off.
Mr Turner said he would also allow Capital pubs – which are unbranded – to retain their individuality: "Short of putting our name above the door, that is the way we operate," he said.
But in its statement to the Stock Exchange, Capital said it "considered both the indicative offers of 175p and then the rapidly increased offer of 200p per share and unanimously decided that even the higher indicative offer substantially undervalued the business and its prospects".
The 34 strong pub chain – which wants to increase that to up to 50 over the next two years – said its results next week would show "significant operational and financial progress" after reporting a £1.5m pre-tax loss last year.