Punch set for pounds 2.7bn offer

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The Independent Online
PUNCH TAVERNS will launch a bid of around pounds 2.7bn for Allied Domecq's 3,600 pubs this week in an attempt to wrest control of the estate from the clutches of Whitbread.

Punch's cash offer is likely to be worth more than Whitbread's all-share bid, which suffered a setback on Friday when its share price fell almost 5 per cent. Whitbread's bid is now worth about pounds 2.45bn.

Allied has insisted that Punch's offer is unconditional so that its shareholders can make a straight choice between the two bids at an extraordinary general meeting on 2 July. Allied investors will be making a choice between Hugh Osmond, the 37-year-old Punch boss who made his name developing Pizza Express, and David Thomas, chief executive of the venerable brewer which in recent years has turned its attention towards its hotel and health club brands.

Some of Allied's institutional shareholders have previously indicated a preference for accepting Whitbread shares, thereby avoiding the capital gains tax liability they would incur by accepting cash from Punch. However Punch claims to have found a way round the tax problem.

Punch, which owns about 1,800 pubs, is expected to dispose of a chunk of the Allied estate if its bid prevails. The PubCo, which is 70 per cent owned by Texas Pacific, the US buy-out specialist, has gathered a first- rate team of advisers including investment banks Credit Suisse First Boston and Merrill Lynch, accountants Arthur Andersen and PricewaterhouseCoopers and lawyers Slaughter & May.

Whitbread's estate would be the country's biggest if it acquires Allied's pubs. However, the Beer Orders of 1989, which sought to limit the power of big brewers, mean that Whitbread is having to dispose of its three breweries. The company announced last week a plan to demerge the breweries in a deal expected to raise pounds 350m. It has also received at least five expressions of interest for the breweries from a combination of venture capitalists and trade buyers.

Allied is leaving the pub business in order to concentrate on its highly regarded spirits business, which includes Beefeater gin and Ballantine's whisky. However, there have been reports that bidders are lining up to buy Allied once the pubs are sold, notably Pernod-Ricard of France.

The battle between Punch and Whitbread has been a bitter one. Punch has written to the Office of Fair Trading, urging it to block the disposal of Whitbread's breweries on the grounds that this would violate the Beer Orders. Whitbread refutes this suggestion but its offer for the pubs is conditional on approval by the OFT, which will give its verdict on 14 July.

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