Punch raises bid for Allied pubs to pounds 2.85bn

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The Independent Online
THE TAKEOVER battle for Allied Domecq's pubs and off-licences entered a dramatic new phase yesterday when Punch Taverns stole a march on its rival Whitbread by boosting its offer to pounds 2.85bn in cash.

The new offer, pounds 150m more than its offer last week, caught Whitbread's directors off-guard in the middle of their annual meeting, forcing them to postpone a statement on the takeover battle scheduled for the end of the meeting.

Hugh Osmond, the 37-year-old entrepreneur who heads Punch, said: "We said we would come back with a higher offer and that it would be certain. We have and it is. I would guess we have finally delivered the knock-out punch."

Punch's new cash bid is worth nearly pounds 500m more than the value of Whitbread's paper offer of 230 million shares. Yesterday, Whitbread's shares slipped 10p to 1,019p, valuing its offer at around pounds 2.35bn.

The increased offer puts heavy pressure on Allied Domecq's board to switch their recommendation from Whitbread to Punch. Unless directors recommend Punch's new offer by Monday, it will lapse.

Punch said it had cleared away a series of obstacles to its bid, pointed out by Allied and Whitbread. It now had legal confirmation that neither Allied nor its shareholders would suffer big corporation or capital gains tax liabilities.

Bass has pledged to spend a further pounds 30m on buying 650 managed pubs from Punch if it clinches the deal, bringing its total contribution to pounds 1,015m. Around pounds 580m is coming in equity financing from Texas Pacific Group, with the rest in banking facilities made available by Morgan Stanley.

Allied responded to the offer with a statement saying the new Punch bid was still hedged with conditions. Because it does not have access to key documents, Punch cannot promise not to sue if the pubs turn out to be worth less than expected.

Whitbread could also sue Allied for damages if it plumps for the Punch offer, claiming it has broken an agreement meant to last until 30 September.

"If Allied Domecq have other hoops and hurdles they would like us to jump, we will look at jumping them," said Mr Osmond. Punch yesterday met Allied's advisers, Goldman Sachs, for the first time. Sources familiar with the deal later said the legal obstacles were not insuperable.

Whitbread's offer was also dealt another blow yesterday by the Office of Fair Trading. In press comments, Whitbread suggested this week that discussions with the OFT indicated there were few substantive competition issues. That prompted an unprecedented statement from the OFT, in direct contradiction. "Whitbread has been recently advised by OFT officials that the merger is to be considered at a formal meeting of the Mergers' Panel. The Panel does not meet unless there are substantive competition concerns," the OFT said.

"The director-general of Fair Trading has not yet received the Panel's view nor reached any conclusions regarding the merger, nor has he determined the nature of his advice to the Secretary of State for Trade and Industry."

If Whitbread wins the takeover, it will gain control of 3,544 pubs, including the Firkin, Scruffy Murphy's and Mr Q chains, bringing its number of pubs to around 10,000. It will also own First Quench, the off-licence chain formed from the merger of Victoria Wine and Thresher's.

Pressure was mounting yesterday for Allied's directors to give full consideration to the Punch offer. Mr Osmond claimed City fund managers had begun raising issues of corporate governance in connection with the approach taken by Allied Domecq's directors.

Analysts began to question why Allied appeared reluctant to recommend the Punch bid. Some suggested personalities could be a factor because Phillip Bowman, Allied's new chief executive, is a former employee of Bass. Mr Bowman left Bass after a disagreement with Sir Ian Prosser, chairman and chief executive, over policy.

Bass was also one of five interested parties which approached Allied Domecq when it emerged that it was in talks with Whitbread.

A spokesman for Allied said personalities were "absolutely not" an issue. All approaches were rebuffed pending the conclusion of the discussions with Whitbread, he said.

But one analyst said: "I think the view of Allied's management, which was beginning to improve after Philip Bowman replaced Tony Hales, is beginning to fall away again," said one.

Confusion reigned yesterday over the response to Punch's offer. Yesterday evening Whitbread said it was waiting for the outcome of a meeting of Allied's board. In contrast, Allied Domecq said it was down to Whitbread to clarify its position.

Outlook, page 21

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