M&B plans £500m cash return to foil Tchenguiz

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The All Bar One owner, Mitchells & Butlers, shored up its defences yesterday against a potential £4.6bn bid including debt from the entrepreneur Robert Tchenguiz by outlining plans to return about £500m to shareholders and to acquire 250 pub restaurants from Whitbread.

Mr Tchenguiz, backed by Deutsche Bank, HBOS, Apax Partners and Barclays Capital, is working on putting together a 550p-a-share bid before a Takeover Panel deadline of 28 May. Britain's second-largest pubs group, which runs some 2,000 managed pubs including the O'Neill's and Harvester chains, rebuffed an informal approach from the consortium and is believed to be holding out for an offer of closer to 600p a share.

Tim Clarke, the chief executive, said it had never made a secret of its interest in Whitbread's struggling Beefeater and Brewers Fayre chains. "They're not unaware of our interest. Our interest has been long-standing," he said.

Whitbread put its 250 free-standing pub restaurants up for sale earlier this week, which analysts say could go for £450m to £500m, but it will retain 271 outlets attached to Premier Travel Inns. Analysts at Williams de Broë described Whitbread's pub restaurant performance as "woeful" when compared to M&B, which issued a bullish trading update yesterday.

Mr Clarke was confident M&B could boost its returns and would convert Whitbread's pubs to its Harvester, Vintage Inns, Ember Inns and Toby Carvery brands. While the group intends to return about £500m to shareholders following a refinancing, which will raise its debt to above £2bn, the amount depends on acquisitions. But because the pub group can borrow against the assets it is buying, it expects to return at least a material part of the £500m to investors. "This is a pre-emptive defence," said Paul Hickman at KBC Peel Hunt.

Mr Tchenguiz's bid approach was left in tatters when his backer and adviser, Goldman Sachs, pulled out and he has spent the past fortnight rebuilding the consortium. Deutsche Bank has filled the gap left by Goldman's sudden exit by acting as advisers and providing debt for the takeover approach, but Mr Tchenguiz is still trying to plug the hole in the planned equity package.

M&B said first-half profits grew nearly 10 per cent after unveiling the best like-for-like sales growth in the pub sector with a 4.3 per cent increase in the 13 weeks to 22 April, driven by strong food sales. Sales in Scotland improved following the introduction of a smoking ban there on 26 March, as pubs attracted more families and women. Mr Clarke said the company had prepared well for the ban by cleaning all its 100 Scottish pubs to get rid of lingering tobacco smells.