Punch pulls stock market flotation after losing support of institutional investors

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The Independent Online

Punch Taverns was forced to pull its £680m stock market flotation last night after failing to win sufficient support from institutional investors.

Punch Taverns was forced to pull its £680m stock market flotation last night after failing to win sufficient support from institutional investors.

The company's advisers felt that to have got the float away they would have had to cut the issue price to the bottom of its 250p to 300p-a-share pricing range, which would have given the group a market capitalisation of just £620m.

Punch, which operates 4,250 pubs, blamed the disappointing performance of HMV Group, the music retailer, whose shares went to a discount on its stock market debut last week.

The pulling of the Punch float casts a black cloud over the tentative revival of the IPO market. It is a severe blow to the long list of companies waiting in the wings to float. They include John Wood Group, William Hill, Yell and Focus Wickes.

Institutional investors shunned the stock because the group's growth prospects lagged those of Enterprise Inns, its acquisitive quoted rival which recently leapfrogged Punch to become Britain's largest landlord.

The grey market prices of the shares were yesterday barely above the bottom of the range set by Merrill Lynch, which managed the share offering. Cantor Index, a spread betting firm, settled its opening trading price at 255p to 265p; while City Index cut its spread to 264p to 274p.

Ashley Tatham, the head of equities at City Index, said: "Sentiment turned against it in the last 24 hours after negative publicity." David Buik, at Cantor Index, said: "Normally we like to get some feedback from the lead bank but we've had absolutely nothing."

Speculation had mounted yesterday among independent analysts, who were barred from seeing the prospectus, that the float was struggling to get away. "The market is thinking of saying no," one analyst commented.

Another analyst blamed Merrill Lynch for setting the price too high. "They promised too much to win the deal. All you needed was an HMV to happen or some bad press for it to go wrong," he said.

The growing list of venture-capital backed stocks queuing up for flotation has raised scepticism among fund managers about the vendors' objectives in listing.

"Most of these are not once in a lifetime opportunities, they're 'me toos' and need to be treated as such," said Tim Rees, director of investment strategy at Clerical Medical Investment Group.

Mr Rees said his institution had turned down the chance to subscribe to Punch. "It's a relatively small free float without a compelling reason to favour it over other existing opportunities in the wider sector. [The float] was an out for the vendors and in those circumstances it was entirely right for institutional investors to think very carefully," he said.

Punch, which was built by acquisition by Hugh Osmond, the serial entrepreneur, had hoped to sell 100 million shares. It was aiming to raise £250m to cut debt and fund further acquisitions. At the bottom end of the price range the business would have had an enterprise value of £2.1bn, including £1.5bn of debt.

Nigel Popham, at Teather & Greenwood, said: "The company clearly has some merit. But by not putting all their wares in front of everyone they lost credibility. They also reduced their market by not going for the retail investor."

While the lack of transparency from Punch's advisers made valuations hard, independent analysts had reckoned on the shares trading at a price-earnings ratio of about 7 times. This would have compared with a p/e ratio of 11 times for Enterprise Inns.

Along with his fellow founding directors, Roger Myers and Alan McIntosh, Mr Osmond, who stepped aside as chairman of Punch last year, had stood to make £55m from the share sale. Other options for Punch's consortium of private equity owners, of which Texas Pacific is the largest, include breaking the group up in a trade sale, analysts said.

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