The latest news from the Motley Fool: Investors bamboozled by war of the boozers

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nvestors in the brewing and pubs sector, particularly those holding shares in Allied Domecq and Whitbread, had a rather exciting time last week.

Britain's brewers, who got away with a near-monopoly in the pub retail trade for many years, were forced to relinquish control over many of their tied houses in 1989. The repercussions from that momentous change are still being felt as consolidation in the sector continues unabated.

It is a huge market, and the desire to grab a chunk is understandable. Britain sells more beer per head of population through public houses than any other country.

The latest battle, this time for control of Allied Domecq's pubs and off-licences, was never going to be friendly and gentlemanly. In this particular takeover war, fought between privately owned Punch Taverns and publicly quoted Whitbread, the gloves are off.

The bout has been raging for the last couple of weeks, and it looked as though Punch might just have landed the knockout blow with its increased cash bid of pounds 2.85bn.

This upped Punch's initial bid which, at pounds 2.7bn, was already ahead of Whitbread's rival offer of shares (valued at around the pounds 2.3bn mark). Punch's increased offer, which was at around pounds 500m more than Whitbread's initial one, looked hard to beat.

But beat it is exactly what Whitbread is did, after an announcement on Friday that a new offer, of pounds 2.877bn, was made.

Whitbread has responded to the apparent unwillingness of Allied Domecq shareholders to accept its shares by offering pounds 1.5bn of cash in the bid.

Punch is a cash-rich company, and so has no problems at all in finding the money needed to support its bid. But the cost to Whitbread of raising sufficient capital for its counter-bid might be too high for some of its investors.

The issue is further complicated by two other problems. First, there is the possible intervention of the Office of Fair Trading, which has expressed regulatory concerns over a Whitbread takeover. The OFT is not expected to give its verdict until 14 July.

Second, the offer from Punch is due to expire tomorrow if it has not been accepted by then - which rather increases the pressure.

So where does this leave the shareholders of Allied Domecq?

Well, for one thing, in the same boat as the great sage of Omaha, Warren Buffett - the world's most successful private investor.

Mr Buffett's Berkshire Hathaway investment holding company took a stake in Allied Domecq recently. The board of Allied Domecq has not made any recommendation over the latest Punch and Whitbread bids yet.

Allied Domecq had planned to hold a shareholders' vote on Friday but this has now been postponed.

So what are the shareholders to do?

The flurry of bids and counter-bids cannot be in the best interests of Allied Domecq shareholders, who need (and deserve) the chance to consider both proposals carefully before making their decisions.

Foolish Investors will, of course, understand that investment decisions are not to be made lightly, as they are an important part of a long-term investing strategy.

In this instance, as is so often the case, it looks as though the interests of the management teams and large institutional shareholders have been put first, at the expense of small, private investors.

Fast and furious dealings and offers that lapse quickly are aimed at forcing people to make up their minds. Hastiness is definitely not in the Foolish tradition.

One day these dealings will be carried out slowly and calmly, with enough time for small investors to understand and digest all of the details.

Unfortunately, however, this is unlikely to be any time in the near future.

n The Motley Fool,


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A while ago, I bought shares in a mining exploration company after reading claims that one of their new wells was sure to hit oil and the share price would go through the roof. Instead, the well turned out to be dry, and I ended up losing most of my money.

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British Biotech has been suffering lately, but it seems to me that it cannot fall much further. And it could be a takeover target too, couldn't it ? Does it look like a good investment?

SF, London

The Fool responds: First, the Motley Fool would never offer a "buy" or "sell" opinion on any company. Instead, we would urge you to research your favourite companies yourself and make your own decisions. There are a few things you should bear in mind, though. Shares priced at just a few pennies can be volatile and risky, and there is no such thing as a company that "cannot fall much further". We would also caution against making decisions on rumours or suspicions of takeovers. That would be most unFoolish.

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