View from City Road: Greene King's flat beverage

WITH Greene King, the East Anglian brewer, needing only 3 per cent more of its target to claim control, the hostile pounds 103m bid for Oxfordshire-based Morland could close today, its third closing date. If unsuccessful, Greene King could extend the offer again, to 27 July at the latest.

Brewing companies have traditionally been valued in takeovers with reference to net assets, because of the property element in brewers' public house estates. Greene King has tried to persuade shareholders that Morland should be valued on the same basis.

Barclays de Zoete Wedd, the stockbroker, calculates falling house prices in the South-east means Morland shares are underpinned by assets of just 370p. Greene King is offering 450p in cash and 477p in paper, making the premium to net assets a handsome one. But the comparision is redundant; Morland does not need to sell the properties, and anyone who tried to do so in the current market would be daft.

Shareholders should rather look to Morland's earnings potential. In a post- Beer Orders environment, pubs must be seen as earners of income from food, entertainment, bed and breakfast, and drinks, and not merely as outlets for a brewery's beer.

Morland has forecast that taxable profits for the year to September will rise 30 per cent to pounds 7.6m. Greene King's cash offer is equivalent to 17.3 times projected earnings per share of 26p. Even the paper offer is pitched at 18.3 times.

The bid would have gone nowhere without the support of the Whitbread Investment Company's 43 per cent stake, but, because of the notorious Beer Orders, WIC was a forced seller. Other shareholders are under no obligation. Reject the offer.