Outlook: Whitbread holed below water line

NEWS OF Punch's improved pounds 2.85bn bid for Allied Domecq's pubs - received by the luckless Whitbread board in the middle of its annual general meeting - must have been bad enough, but there was worse to come.

Unsolicited, the Office of Fair Trading then put out a statement which said in unambiguous terms that contrary to what Whitbread has been claiming, there are serious regulatory concerns about its offer for the pubs. If Whitbread had been planning to sweeten its terms in an effort to see off Punch, this must surely irreparably have holed the endeavour below the water line.

Consider; Whitbread's share price keeps gently sliding away from it, making the task of launching a credible higher paper offer more and more difficult; on top of this, its own existing offer is now pounds 500m adrift of Punch, a big, big gulf to close; and on top of all that, Allied shareholders are now being asked to run a substantive regulatory risk in accepting the Whitbread offer as well. Just one of these factors in isolation would be hard enough to tackle. All three in combination looks well nigh impossible.

The only factor now standing between the Allied board and recommendation of the Punch offer would seem to be issue of whether subsequent claims against Allied for warrantees should be capped in the same way Whitbread had offered to. But even this is a bit of a non issue since presumably there are no matters Allied directors are aware of which would give rise to such a claim. If there are, then the Whitbread deal must have been a sham all along.

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