Punch Taverns closes in on ailing M&B

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The Independent Online

Punch Taverns, the pub operator, has been revealed as one of the parties that last week made "preliminary and tentative" expressions of interest to Mitchells & Butlers.

The group is set to go head to head with rival bidders for M&B from the private equity sector, including the operation of Robert Tchenguiz, the property entrepreneur who owns 23 per cent of the company.

Punch's approach to M&B followed a disastrous results announcement from the latter company, which owns chains such as All Bar One, Browns, Harvester and O'Neills. M&B said it had launched a strategic review of its business after losing £274m, the equivalent of two years' earnings, on derivatives positionsput in place to safeguard a property venture it had hoped to pursue with Mr Tchenguiz.

A deal between Punch and M&B would create the UK's largest pubs and bars group, and could also satisfy investors' demands for a management shake-out at the All Bar One owner.

While Karim Naffah, M&B's finance director, quit following the property losses, investors have demanded further departures, with calls for the head of Roger Carr, the company's chairman, made by several investors at a stormy agm last week.

Punch, which has been rumoured to be examining a bid for M&B for some time, is keen to capitalise on shareholders' discontent.

It is understood to be proposing that the combined company would be run by Giles Thorley and Phil Cox, respectively its chief executive and chairman, paving the way for Mr Carr to move on.

A deal could also pave the way for the break-up of M&B, which has struggled to satisfy the interests of two distinct groups of shareholders with potentially conflicting interests. One set of investors is primarily interested in the company's property assets, while the other has bought in on the basis that it is a pub operator. Last year's failed property venture was an attempt to square this circle. Mr Carr had hoped to spin off M&B's 1,300 pubs into a separate property company, but the deal was eventually killed off by the deteriorating state of global credit markets.

The same credit crunch could work in Punch's favour, if private equity rivals for M&B – understood to include Apax, Cinven, CVC and Permira – find themselves unable to raise money for an offer.

Punch's proposals are thought to be based on an all-share offer.

Both companies refused to comment last night.