M&B shows Spirit in talks with Punch

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The Independent Online

Mitchells & Butlers (M&B), the struggling pub chain, is considering buying part of Punch Taverns just weeks after the two companies' merger talks were abandoned.

M&B has approached Punch about the possible purchase of its Spirit managed pubs business, which would fit well with its existing estate. And the comp-any is opening its books to private equity investors Permira, Bain Capital and a consortium of CVC and Blackstone this week, with a view to selling a slice of the business in order to fund the Punch deal. Bain is believed to be the front-runner at this stage.

M&B has been up for sale since January after a collapsed property venture cost the company £400m and also claimed the scalps of the finance director and chairman. Initial proposals from Punch were for a merger of the two chains, which would have created a business worth around £11bn and with 10,500 outlets. Under the terms of the deal, each set of shareholders was to own 50 per cent of the new company, with an extra £175m cash sweetener for M&B shareholders. But although the two firms looked well-suited, Punch shareholders were openly against the deal. Lars Bader, who runs a hedge fund which owns 7 per cent of the company, warned that the deal was twice as expensive as it should be.

Punch was careful to leave the door open when it formally withdrew the merger proposal at the end of last month after completing preliminary due diligence. The official statement referred specifically to a number of approaches from third parties, and said the company would be assessing whether any of the proposals would "maximise value" for shareholders.

M&B's share price closed at 332p on Friday, a fraction of the 898p high in May last year, before the global credit problems pulled the rug out from under a £4.5bn plan to sell Robert Tschenguiz, the property billionaire and M&B shareholder, a 50 per cent share of its 1,300 pubs. Several hedging positions set up by the company to protect the scheme from future interest rate rises resulted in major losses.

A strategic review of M&B's business will be published in May. A six-monthly trading update last week showed sales up 0.6 per cent.

Punch Taverns and M&B declined to comment on the Spirit talks.

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