M&B's £5bn property valuation leaves bidder's glass half empty

Mitchells & Butlers' property portfolio is being valued at nearly £5bn, bolstering the pub chain's defence against the £4bn tilt at the business from Iranian tycoon Robert Tchenguiz.

M&B owns around 2,000 managed outlets, including the branded chains All Bar One and O'Neills. In its most recent annual report, published last year, its assets - which are predominately freehold properties - had a total net book value of £3.5bn. But analysts now believe that the estate is actually worth closer to £5bn.

"We estimate, based on the 2003 revaluation, combined with property inflation, that a new revaluation would put the assets as high as £4.7bn," said Paul Hickman, an analyst at brokers KBC Peel Hunt.

"This gives management scope to make very substantial paybacks to shareholders, and still retain the firepower to acquire Whitbread's out-of-town restaurants."

It is thought that both M&B and Mr Tchenguiz are currently assessing the property portfolio. M&B has so far declined to discuss what defence tactics it could adopt until Mr Tchenguiz actually makes an offer, which is not expected until later this month.

It was originally thought that an approach was likely to come in at around 525p a share, which - including debt - would value M&B at some £4bn.

Price targets set by analysts since news of Mr Tchenguiz's interest leaked in mid-March range from less that 500p to up to 700p, with the average coming in at just below 550p.

However, some believe shareholders will only be tempted by a higher offer of around 600p.

"M&B has got some very sizeable ammunition in terms of a very strong balance sheet, and if it has to see off a bid it could easily return money to shareholders," said Nigel Popham at broker Teather & Greenwood.

"Time will tell if Robert Tchenguiz comes up with a bid, at what level, and what level he will be successful at - and that's towards £6."

"The market is badly underestimating the strength of institutional support for current management and the strength of its likely defence," added Mr Hickman. Mr Tchenguiz has secured the backing of Goldman Sachs and private equity firm Apax for his tilt at M&B. It is the latest in a series of moves in the leisure sector by Mr Tchenguiz, who is building up a portfolio of pubs.

His R20 investment vehicle already owns the Laurel managed pub chain and he is also involved in a consortium that is thought to be considering a possible move on the nightclub owner Luminar.

If Mr Tchenguiz does finally secure control of M&B, which was formed out of the former Bass business, it is thought that he will merge the bulk of the existing outlets with Laurel. It is understood that the rest will then be either converted to tenancies or sold off.