Greene King buys Morrells of Oxford for £67m

Greene King, the brewer of Old Speckled Hen, strengthened its pubs estate yesterday with the £67m acquisition of Morrells, the Oxford-based pubs group favoured by the television detective Inspector Morse.

The deal, which includes £30.4m of debt, bolsters Suffolk-based Greene King's position in the South-east, increasing its portfolio to just under 1,800 pubs.

Tim Bridge, Greene King's chief executive, said Morrells provided a "very good strategic fit" for the group, which has traditionally counted Cambridge, not Oxford, as its heartland.

Greene King is buying Morrells' 57 managed and 50 tenanted pubs, most of which are within 30 miles of Oxford's city centre. However, it is not buying Morrells' ale brands, such as Oxford Blue and Graduate, which are brewed under contract by the West Country brewer Thomas Hardy.

Michael Cannon, the leisure entrepreneur who ended the Morrell family's 200-year link to the brewer when he acquired the business for £48m three years ago, is keeping the ale brands as well as the group's distribution business.

"We may select a couple of [Morrells' brands] on a guest ale basis according to demand, Varsity for example, but it will primarily be Greene King ales that are in [the Morrells pubs]," Michael Shallow, Greene King's finance director, said. As well as Old Speckled Hen, Greene King also brews traditional ales such as Ruddles, Abbot Ale and IPA.

Mr Cannon, through his investment vehicle SDA, is also retaining a handful of Oxford-based pubs and Morrells' five Spanish-themed Que Pasa outlets with an eye to expansion. Mr Cannon, who also owns the US hamburger chain Fuddruckers, has previously built and sold several pub chains, including Devenish and the Magic Pub Co, accumulating an estimated £120m fortune.

Analysts said the acquisition, which sent Greene King's shares 7.5p higher to 797.5p, was a sound move that fitted with the group's expansion strategy of bolt-on deals to boost its tenanted and managed house estate. Nigel Popham, a drinks analyst at Teather and Greenwood, said Greene King was "brick building for the medium to long term".

While Greene King declined to divulge full financial details until its interim results, due on 5 July, it said the deal would immediately enhance earnings. The Morrells pubs generated operating profits, before central overheads but after a full investment programme, of £6m in the year to 31 March, Greene King said.

Describing bidding for the pubs as "very, very competitive", Paul Beadle, the chief executive of SDA, said Mr Cannon had not intended to put Morrells up for sale. "It started with some rumours. The sale wasn't on our radar screen but it flushed out some opportunities. We ended up with a handful of people chasing us."

Analysts said Greene King had paid a fair price, which it funded from its £150m cash reserves. In September, Greene King bought Old English Inns for £103m in a deal that also boosted its southern estate. Mr Shallow said that although Greene King has concentrated on the South-east, it wouldn't prevent the group from looking further afield.