Slug & Lettuce seeks night-club deal

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The Independent Online

Pub group Slug & Lettuce, which ended takeover talks with rival Old Monk last month, yesterday confirmed it is trying to broker a merger with Po Na Na, the operator of late-night bars and nightclubs.

The inner-city pub chain saw Old Monk withdraw its bid, rumoured to be worth £25m, in April but remained committed to finding a partner in the fast-consolidating sector.

If the deal is concluded, Po Na Na, which had planned to move from its Ofex listing to one on the Alternative Investment Market this year, would initiate a reverse takeover of Slug & Lettuce.

Slug & Lettuce shares moved nearly 5 per cent higher yesterday - up 10p at 178.5p, while Po Na Na ended 7p up at 189.5p.

James Kowszun, finance director of Slug & Lettuce, said details of the move, which will involve an exchange of shares, had not been finalised. He refused to say whether the Slug board, which has been criticised for a lack of dynamic management, would remain in place. "The focus is creating shareholder value and forming a company that is better than its two parts. If that means getting rid of the board, we will," he said.

Christian Arden, chief executive of Po Na Na, will hold the same role in the new company, with Slug & Lettuce chairman David Williams retaining his position.

The deal, which furthers the trend of consolidation in the UK's leisure and drinking sector, will create a company with a market capitalisation of £75m-£80m and turnover of more than £50m, according to analysts. Po Na Na's late bars and nightclubs business is worth £40m, while Slug & Lettuce's 34-pub chain is valued at £24m.

Nigel Popham, of Teather and Greenwood, said: "Slug & Lettuce has been behaving like a slug, opening only four or five outlets a year compared to Po Na Na's 15 to 20. But the Slug brand is very solid."

Tim Andrews, finance director at Po Na Na, said the deal represents new opportunities when licensing legislation changes. "The change would mean Slug could open its pubs until late but we believe a bar cannot be a cool place to hang out late at night and also a nice place to have lunch. It is better to have a cross-over of venues that is possible with a larger estate," he said.

Po Na Na has grown from an operator of three bars four years ago to one that plans to open 12 bars and two nightclubs a year over the next three to four years. It posted pre-tax profits of £2.6m for the 12 months to March, up from £1.9m a year ago.

Slug & Lettuce recorded £957,000 profit in the half year to November, down from £1.1m in the same period the year before.