Rebel investors line up against Marstons' cash call

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The Independent Online

Marstons, the listed pubs group that is looking to tap investors for £176m, is facing a rebellion from leading shareholders over a rights issue some have dubbed "totally ridiculous".

Ralph Findlay, the chief executive, announced plans earlier this month for the capital raising, which he said would fund and accelerate growth at the Midland's-based brewer.

However, a number of institutional shareholders in Marstons, the FTSE 250 company that produces Pedigree and Banks's ales, are prepared to vote against the rights issue.

One leading shareholder said: "We do not believe this is necessary. Even after we suffer massive dilution the company is still going to be highly geared. It's ridiculous. The rational for this rights issue is spurious."

Another said: "Findlay has got a hell of a cheek. We have backed plenty of rights issues in the past year that have been necessary. This one isn't. It's an opportunistic punt. We, and plenty others, are not happy."

Marstons is carrying debts of around £1.2bn.

At the announcement of the plans to issue new stock in Marstons, which runs the Pitcher and Piano pub chain, the group said it planned to use the cash injection to build new pubs and improve food offerings at the group.

Mr Findlay said: "There are few other people in a position to bid for sites at the moment so we've got a unique opportunity to step ahead."

The group said that in exchange for the deeply discounted issue, which in effect doubles the firm's equity, profits would increase by around 10 per cent in the medium term.

The rights issue, which is being administered by Rothschild, is fully underwritten by the City banks RBS, Hoare Govett and JP Morgan Cazenove. Marstons' share register is dominated by institutions, including M&G Investments, Henderson, Legal & General, Axa, Schroders and Newton Investments.

Marstons' share price has lost more than 3 per cent since the rights issue was announced. The firm's shares have shed more than a third of their value since the start of May.

A recent note from the broker Altium said that there was disappointment the firm wasn't using the cash to make a more aggressive dent in its debts. Marstons said it expected pre-tax profits for the year to October to be no less than £69m.

The troubled pubs sector has been awash with rights issues in recent months including Greene King, which tapped investors for more than £200m and Punch Taverns, which raised £375m to help cut its giant £4.2bn debt pile. Analysts dubbed Punch's capital raising as "a rescue rights issue in all but name".