Mitchells & Butlers to review advisers after investors revolt
Friday 01 February 2008
Mitchells & Butlers is considering sacking its regular adviser Citigroup following the property fiasco which has cost the company £391m in pre-tax losses.
The pub group that owns the All Bar One and O'Neills chains said yesterday that it had looked at taking legal action against the bank and is also conducting a review of its advisors, which include the Royal Bank of Scotland and Barclays.
Last summer, Mitchells & Butlers was just days away from signing a deal with property entrepreneur Robert Tchenguiz which would have seen 1,300 pubs spun out into a separate property company. Both parties had put hedges in place as a requirement to underwrite the debt package.
Financing had been agreed in principle with Citigroup and Royal Bank of Scotland but the credit crunch struck and the banks pulled out, leaving M&B with hedges in place but no financing for the deal.
Unfortunately for the pubs group, the positions, which were expected to come into place at the same time as the financing, were completed three weeks earlier than forecast.
Chairman Roger Carr told angry shareholders at M&B's annual general meeting yesterday that the board had gone about its plans in a professional way but the group's banks pulled out of the deal when the credit crunch struck claiming a "material adverse change" – leaving the company exposed to the two hedges.
However, one source said M&B was likely to want to shift blame away from the company to the banks, adding: "Why did it put the hedging in place before the financing was agreed and signed?"
Shareholders yesterday called for the scalps of chairman Roger Carr and chief executive Tim Clarke. One accused the management team of taking a "flight of financial madness". Many of the shareholders had been with the company since the time it was part of the Bass group, from which it was separated in 2002.
Although finance director Karim Naffah has already fallen on his sword, the rest of the executives and non-executives remain on board. Mr Carr told investors at the meeting: "My instinct in times of trouble is not to desert a ship." But shareholder Aubrey Franklin retorted: "You have made a right mess of this company... some of you seem to think you are financial whizz kids but you are not running a hedge fund. Your job is to run a pubs and restaurant business, but you have taken your eye off the ball."
Mr Carr said the company faced conflicting interests from those shareholders looking for long-term returns and those interested in short-term gains from a property deal. He said shareholders had stood to gain around £3 a share each if the deal had gone ahead.
M&B is now a takeover target. The company has admitted to "preliminary and tentative" expressions of interest which are believed to have come from potential suitors including Punch Taverns, Marston's and Greene King, along with a number of private equity firms.
Mr Tchenguiz, who owns 22 per cent of the company is hoping for a deal so that he can recoup some of his multimillion-pound losses. However, given the uncertain financial climate, analysts say it might be difficult for many of the potential bidders to secure financing without working in partnership with one another.
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