Scottish & Newcastle to put its £2bn pubs estate up for auction

Scottish & Newcastle is to put its entire pubs business up for auction, abandoning almost a year of work on a complex sale and leaseback deal.

Scottish & Newcastle is to put its entire pubs business up for auction, abandoning almost a year of work on a complex sale and leaseback deal.

The Edinburgh-based group, whose brewing empire includes the John Smith's bitter and Newcastle Brown Ale brands, hopes to raise £2bn from the auction with which to buy up brewers across Europe.

The sale of its entire retail division – which includes 1,500 pubs and restaurants and 130 Premier Lodge budget hotels – would also allow S&N to strengthen its balance sheet and ease persistent fears that it may have to cut its dividend.

The strategic U-turn will be announced alongside a trading update today and is likely to be welcomed by investors. S&N's chairman, Sir Brian Stewart, has been impressed by the venture capital interest shown in Six Continents, which attracted – and fought off – a hostile bid when it demerged its Mitchells & Butlers pubs business from its InterContinental Hotels.

S&N hopes some of the putative bidders for Mitchells & Butlers will also take a look at its pubs estate, which includes chains such as Bar 38, Henry's Bar and T&J Bernard as well as more than 700 unbranded local public houses.

It means S&N has walked away from a sale and leaseback deal with Nomura which would have involved about a third of its pubs estate. The negotiations had dragged on and the board decided that a full sale would be the best way to realise value from its pubs estate, as first promised last year. S&N Retail has an annual turnover of almost £1bn and employs more than 30,000 people.

Buyers for the business might include Hugh Osmond, who was thwarted in his bid to buy Six Continents, while private equity interest is likely from CVC Capital Partners, Texas Pacific and BC Partners.

Some sceptical analysts expressed fears that S&N may struggle to achieve a full price for its pubs after consolidation in the sector has already raged for a number of years. But others believed that S&N could raise £2bn from the sale that would enable it to shore up its dividend and give it the flexibility to expand its brewing empire.

It is likely to pick up regional brewers across Europe, having already shown its ambitions through the acquisitions of Kronenbourg in France in 2000 and Hartwell in Finland last year. The latter deal took S&N into the vast but so far disappointing Russian beer market for the first time.

It could also try to bid for the Danish giant Carlsberg, its partner in Russia. And, at the weekend, it was again linked with the stricken cider-maker HP Bulmer, where S&N could face a bidding war with Interbrew and Ireland's Cantrell & Cochrane.

Sir Brian is setting S&N on a dramatic new course just two months before he relinquishes his hands-on role at the company. He will become non-executive chairman in July on the arrival of Tony Froggatt as chief executive. The former boss of Seagram's European business was appointed earlier this month.