Whitbread-Allied talks hang in balance

WHITBREAD'S proposed acquisition of Allied Domecq's pubs and other UK retail activities hung in the balance last night amid reports that the talks had differences that were proving difficult to reconcile.

Both companies played down suggestions that the talks had irrevocably broken down. Whitbread issued a statement saying: "Talks were suspended yesterday [Saturday] because agreement could not be reached on a few remaining points, but they will pick up again on Monday."

However, the exclusivity agreement on talks between the two companies terminates at the end of this month, leaving little time to conclude a deal.

An Allied spokesman said: "The situation is still the same as it was - both sides are in discussions that may or may not lead to an offer. These negotiations haven't stopped. Of course, negotiations have their ups and downs."

The sticking point is thought to be the level of Allied Domecq debt to be included in the deal. Newspaper reports said the gap between the two sides was between pounds 50m and pounds 100m. But yesterday there were signs a solution could be near, with sources close to Whitbread saying the true figure was "nearer pounds 50m". Doubts also surfaced over the proposed structure of the deal. Originally the transaction was to have been in shares and some debt. There were reports that Whitbread had made changes to the proposal which would have reduced the tax benefits of a sale. However, David Reed, a spokesman for Whitbread, said both parties were agreed on what was being bought and in what form, and negotiations now concerned only valuation.

"The offer is substantially a final one," he said. "There are just a few points left."

He said that under the exclusivity agreement between the parties, Allied was forbidden from entering negotiations with other purchasers before 1 June unless Whitbread tabled a formal offer. Nevertheless, there was nothing to stop other bidders from putting an offer to Allied Domecq before Whitbread did so.

Bass, the brewer, and Punch Taverns, the pub group run by Hugh Osmond, are thought to be anxious to make a bid for some or all of Allied's activities. Bass yesterday said it was watching the situation closely. Mr Osmond, who has already expressed an interest in bidding, declined to comment.

Sector observers said the leaks showed that both sides were becoming increasingly desperate to close the deal.

An industry source said: "It's beginning to look like the leak four weeks ago really was an accident. If Whitbread is saying there's still an offer on the table, there must be a serious stand-off. We've been told several times an announcement is due on a particular day, and it never comes."

The Whitbread deal is thought to be a paper offer of pounds 2.35bn. Analysts estimate it is worth pounds 2.8bn to Allied's shareholders after taking into account the cost savings in the deal.