Regent Inns shares slump 40% after it calls time on takeover talks

Shares in Regent Inns, owner of the pub chain Walkabout, tumbled to an all-time low yesterday after it issued a profits warning, called time on takeover talks and announced the departure of two senior executives.

The group, which also owns the Old Orleans restaurant chain and Jongleurs comedy clubs, expects pre-tax profits to be minimal for the year ending 28 June because of a "substantial reduction" in like-for-like sales in its entertainment division.

Its shares plummeted by more than 40 per cent to close at 3.88p.

Ben O'Toole, an analyst at Dresdner Kleinwort, said: "We think there is a chance the equity becomes worthless and move back to sell [from hold]."

The downbeat trading update came as Regent Inns unveiled a shake-up of its board. The executive chairman, Bob Ivell, will become a non-executive and leave in "due course". Russell Scott, managing director of operations, is leaving immediately. The former chief financial officer, John Leslie, has been promoted to chief executive, while the former commercial director, Simon Kaye, has been made chief operating officer.

Mr Leslie blamed the credit crunch for the breakdown of takeover talks. He declinedto comment on names, butRegent Inns has been in talks over a potential sale for six months. It is thought to have held talks with parties including the US private equity firms Alchemy and Sun Capital, as well as Novus Leisure, operator of Tiger Tiger bars.

Mr Leslie said: "We were ultimately frustrated by the difficulties in the lending market and that was frustrating for all parties, and we all thought it was the right thing to do to come out of an offer period."

He said the company would now focus on "plan B". Mr Leslie said: "The focus for the next year or so will be paring down debt and reducing costs."

It also plans to conduct a sale and leaseback on seven freehold properties, which have been delayed because of the offer process, while a review of its property portfolio will result in the disposal of non-core assets.

Mr O'Toole said that selling freeholds worth about £25m will help Regent Inns cut its net debt of £80m, but added: "Deals are likely to be drawn out given property market weaknesses, particularly in wet-led [pub-based] leisure assets."

Regent Inns has been hit by a series of negative factors including the smoking ban, given that most of its premises are on high streets, falling consumer confidence, and the rise in alcohol excise duty in the Budget in March.

"A lot of factors have conspired against us in a very short time period," Mr Leslie said.

He added: "Consumer confidence is an important factor for us because our venues are largely based around partying and the people's feelgood factor. Disposable incomes have taken a real hit in the past few months and there are pressures on utility bills and food prices."

Mr Leslie said that the Chancellor's decision to raise taxes on alcohol has "served to widen the gap" between on-trade sales of booze in bars and off-trade sales, such as in supermarkets.

On its performance, Mr Leslie said: "It has been a very difficult time in a difficult market, but the business is fundamentally stable." More specifically, he said that the Jongleurs comedy clubs had "performed relatively robustly" in the second half of its financial year, while Old Orleans "performed well" in the sites it has invested in.

However, the group's Walkabout chain, which is known for showing live sports and being popular with antipodeans, continues to struggle. "Walkabout is not a broken brand. It is a strong brand which is suffering from a lack of consumer footfall, particularly in the first half of the week," Mr Leslie said.

For the period between 30 December 2007 and 14 May, the group's entertainment bars business, primarily Walkabout and Jongleurs, delivered like-for-like sales down 10.9 per cent. In its interim management statement on 16 May, Regent Inns said the fall has "principally arisen" in Walkabout, while the performance at Jongleurs was much stronger.