Vaux investors cool on break-up attempts

INSTITUTIONAL investors in Vaux, the troubled Sunderland brewer, are backing the board's strategy of selling off the brewing operations to the chairman's brother, though they expect the group to fall to a break- up bid.

Though major investors are not actively pushing for a deal, they see the removal of the problematic brewing operations as clearing the way for a bid for the rump which contains the valuable Swallow Hotels chain.

Whitbread is thought to be running the slide rule over the group. Stakis, which has just agreed to a pounds 1.2bn takeover by Ladbroke, is also understood to still be in touch with Vaux after its approach to the company last year. Swallow Hotels would fit within Ladbroke's plans and it has emerged that Ladbroke also looked at Vaux late last year. However, Stakis was Ladbroke's main target and it is thought the group will concentrate on integrating the chain into its Hilton hotels operation before making any further hotels acquisitions.

The continued support of major institutions, which include Phillips & Drew and Britannic, will be a relief to the rump of the Vaux board still shell-shocked by the sacking of the chief executive and finance director earlier this seek.

They left after going behind the board's back to shareholders after they were outvoted on the decision to grant Frank Nicholson a four week exclusive negotiating period on buying the brewing operations.

There had been speculation that shareholders might express concern over the terms of the proposed agreement with Mr Nicholson. The deal includes a five-year beer supply agreement, though the terms are not thought to be overly onerous.

Investors also dispute suggestions that the proposed pounds 80m deal with Mr Nicholson is an under-valuation. They say the board feared that the alternatives could have been worse. The disposal committee, led by the non-executive directors, were concerned that if Vaux sanctioned plans to close the Sunderland brewery, which employs 600 workers, it might provoke a local backlash. They feared a possible boycott of its pubs - the impact of which would be unquantifiable.

Vaux shares closed 3p lower at 298.5p.