Punch lowers price to achieve successful flotation

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The Independent Online

Punch Taverns is pressing ahead with plans to list its shares on the stock market just days after it was forced to pull its float because of a lack of investor support. The pubs group has slashed its offer price to 230p a share, valuing it at £570m.

Punch, which is Britain's second-biggest landlord, is raising £174m, down from its initial target of £250m. The company, which cut its target range from 250p to 300p, said the issue was three-times subscribed in a book-building exercise that lasted just two-and-a-half hours. Its shares start conditional trading tomorrow.

The U-turn will provide a welcome boost for the initial public offerings market, which has struggled to make headway since the disappointing debut of the music retailer HMV two weeks ago. The betting chain William Hill and John Wood, the energy services group, are among companies planning flotations in the near future.

Punch, which was built by acquisition by Hugh Osmond, the serial entrepreneur, has sold about 70 million new shares with 6 million available to sell later, out of a total issue of 248 million shares. This will give a free float of about 30 per cent.

Analysts said the decision to press ahead with the listing suggested a degree of desperation. One analyst, who chose not to be named, said: "The company is somewhat discredited by the affair. People will be fairly cautious of the stock." Another said: "Punch's advisers realised they were pretty desperate to float and accepted the fact that Merrill Lynch [the lead bank managing the offering] overpriced the offer to begin with."

City sources said Punch was forced to revive plans to list because without access to the equity markets the group lacked access to further capital. The proceeds will be used to pay down the group's debt and fund future acquisitions with just £69m going to existing shareholders compared with £154m previously, a spokesman said. Private equity groups led by Texas Pacific hold 85 per cent of the equity, while management hold the other 15 per cent. None of the existing investors are selling any of their ordinary shares.

The spokesman said the string of blue-chip investors in the group "would answer criticisms about the company" and "do a lot to settle nerves" about the new issues market.

At 230p a share, Punch will trade on a 20 per cent discount to its larger quoted rival Enterprise Inns. One independent analyst remained sceptical: "If you float you need to be better than the companies out there. There is no way you can say that of Punch. It isn't even in the same league as Enterprise."

Much of the blame for Punch's aborted float last week was heaped on HMV, whose shares opened to a discount and have fallen ever since. "The deal was moving very happily until HMV kiboshed the market," the spokesman said.