Outlook: Whitbread/Allied

IT IS little wonder that Allied Domecq's shares soared yesterday; the pounds 2.5bn pubs deal with Whitbread is essentially the long-awaited de- merger by another name. The structure of the all-share deal means Allied shareholders will avoid the heavy capital gains tax charge they would incur with a cash buyer. The exit price is higher than could have been achieved via formal de-merger. And the disposal leaves Allied in a stronger position to attract a spirits merger with the likes of Seagram or Bacardi.

All this cuts little ice with potential rival bidders for the pubs, of course. Pub companies like Punch Taverns claim they could offer more. But they would not want the First Quench off licenses or the stake in Britvic, in which Whitbread is already an interested party, and a series deals could prove messy for Allied. There is something to be said for the clean break deal with a single buyer, and so far there is no evidence of Allied shareholders cutting up rough over being shortchanged.

For Whitbread the benefits are clear. It gets 3,500 pubs and all the buying gains that kind of scale implies. It also gives it a huge portfolio of formats to re-shuffle. The underperformance of the Allied estate means there is plenty of upside that good management and some much needed capital investment could release.

Does the deal get Tony Hales off the hook? The beleaguered Allied chief executive has been tipped for the chop more often than the average England football manager. The City now seems to like him for once, but there must be a questionmark over how far this company can go as an independent entity. Allied Domecq has become a relative pigmy in a land dominated by giants. The trouble is that Seagram seems more willing to go it alone these days and Bacardi's private status may make a deal difficult to strike. Mr Hales can't sit back with the Ballantines just yet.

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