Punch open to deal after pulling M&B merger

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The Independent Online

Punch Taverns has pulled out of the proposed merger with its beleaguered rival Mitchells & Butlers (M&B), but left the door open for a future deal.

M&B, which owns All Bar One, Harvester and O'Neill's, was put up for sale in January following losses of nearly £400m on a collapsed property deal that cost the jobs of the finance director and the chairman.

Under Punch's offer, each set of shareholders was to own 50 per cent of the new company – which would have been worth £11bn and had an estate of 10,500 pubs – with an extra £175m cash sweetener for M&B shareholders, representing a dividend of 43p per share.

But despite the potentially good fit between the two companies, particularly in the food-serving businesses, the deal was scuppered by reluctance from Punch shareholders and the M&B board, according to sources close to the negotiations.

The scheme was troubled from the start. Despite apparent benefits for M&B shareholders, who include the billionaire investor Robert Tchenguiz, it has been estimated that 60 per cent of shareholders bought in last year with a view to cashing in on the property venture, and are now looking for a profitable exit. And sources say that the company's board also showed little appetite for the deal.

Punch shareholders were also wary. Last month, Lars Bader, manager of the QVT Financial hedge fund which owns 7 per cent of the business, warned the deal terms would be paying twice what it should.

Punch's official statement said: "Preliminary discussions with, and preliminary due diligence on, M&B have led the board to conclude that the terms proposed are no longer in the best interests of Punch shareholders and therefore Punch is withdrawing its merger proposal."

The announcement came as M&B's deadline for formal proposals expired. And with initial tentative interest from private equity groups such as Apax, CVC Capital Partners and Terra Firm also evaporated, some industry experts are questioning whether M&B's options have run out.

"I don't think there is anyone out there now," said one investment analyst. "And private equity is not likely to buy a consumer-focused business, that needs cash pumping into it, at a time when you just can't borrow billions for a deal."

But Punch's statement was careful not to rule out all chances of a future deal. The firm said it has been approached by a number of third parties about possible transactions and may come forward with new proposals in due course.

"Punch is assessing whether any such proposal would maximise value for Punch shareholders," the company's statement said.

After early losses, M&B stock closed up 4 per cent. Punch stock gained 6.9 per cent.

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