Tchenguiz mulls £4bn bid for pubs group M&B

By Gary Parkinson,City Editor
Tuesday 14 March 2006 01:00

Mr Tchenguiz was forced to clarify his intentions by the Takeover Panel, which polices mergers and acquisitions, after bid rumours spurred M&B shares 77p to a record 490p.

A short statement to the London Stock Exchange said R20, his investment vehicle, is in talks about forming a consortium to bid.

No contact has been made with the company, which promised further information should any approach be forthcoming.

In December, Mr Tchenguiz lost out to Punch Taverns in a £2.7bn battle for the Spirit pub group. Spirit fetched about 10.3 times annual earnings. Priced similarly, Mitchells & Butlers would command a price tag just shy of £4.2bn, including £1.6bn of debt. That equates to about 540p a share.

Britain's pub culture may be changing, with smoking to be taken outside next year, but M&B is adapting nicely. It had a decent Christmas, when a steady increase in the food it shifted offset slower demand for beer and higher energy costs and wages.

And this year the company, which owns the O'Neill's and All Bar One chains, expects to benefit from longer opening hours.

Despite failing to win Spirit, Mr Tchenguiz, 45, controls a pub empire comprising more than 850 ale houses, including brands such as Slug and Lettuce. A hugely successful property investor, he built his pubs operation quickly by borrowing against property values rather than earnings.

This is the traditional Tchenguiz business model. Typically, he borrows heavily from banks to buy property and uses rental income to cover interest payments, plus a little on top. He is then free to pocket any rise in the value of the property.

The cheaper the debt, the more lucrative the deal. So, expensive short-term debt taken out to get a deal done is often replaced by cheaper longer-term borrowings, usually by issuing bonds against income from the property. His extensive property investments have been as diverse as health and fitness clubs, luxury offices and petrol stations.

Mr Tchenguiz was part of a consortium that took the supermarket chain Somerfield private for £1.1bn last year. And since their first deal in 1983, he and his older brother Vincent are estimated to have amassed a combined personal fortune £400m.

Mr Tchenguiz has also earned a reputation as a playboy, and appears as often in the gossip pages as the business pages. His renown as a lavish host is equally as legendary. In Cannes, he hires a yacht each year for the international property market fair.

The two boys and their sister Lisa were born in Iran, though they are Iraqi by heritage. The family fled to Britain in 1979.

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