Pub company Punch Taverns in takeover tug of war as Heineken faces rival bid

Punch Taverns is at the centre of a tug of love after Heineken and one of the company’s co-founders separately approached Britain’s second-largest pub chains with takeover offers.

The battle between Europe’s largest beer maker and Punch founder Alan McIntosh erupted yesterday after it emerged the two sides had talked to Punch’s board in recent weeks.

Heineken is in advanced discussions with the board, which is chaired by Stephen Billingham, over a 173p-a-share deal. If successful, it would add the lion’s share of Punch’s pub estate to its existing UK pub operations,  handing the brewer control of one in 10 pubs in the UK.

But Mr McIntosh’s Emerald Investment Partners fund is also in discussions about a slightly higher 185p-a-share offer, which would value Punch at £410m against the Dutch drinks group’s mooted £386m price.

The emergence of a possible bidding war lit Punch’s shares, surging almost 41pc at one stage, as investors cheered the developments.

The rival suitors came calling after a return in good fortune for Punch, which underwent a painful debt restructuring in 2013, when it edged towards defaulting on two loans used to fund its pre-recession expansion.

Last month, the company posted £60m in profit for its last financial year, compared with a £105m loss in the prior year when it was crippled by the costs of its debt restructuring.

Despite the return to profit, the pub chain reported a slowdown in sales and warned that the full impact of the new pub tenancy rules introduced by the Government had yet to be felt.

Punch’s debt pile stood at £2.3bn in 2013, triggering a shake-up in the way it leases out pubs and a wave of property sales worth £234m in the last year alone.

Chief executive Duncan Garrood said in November its plan was now paying off: in the 52 weeks to August 20, it reduced its net debt by £188m to £1.36bn.

“Grave concerns” have been raised over whether the takeover would allow the Dutch brewer an unfair advantage when selling beer to tenanted pubs

Credit:
ERIC GAILLARD/Reuters

Critics questioned the impact Heineken’s plans would have on competition in the sector if it were to be the eventual victor. Industry regulators have already legislated a break the centuries-old beer tie which in the past has bound pub tenants to selling the beer made by their brewer owners. But concerns have been raised that Heineken could use its scale within the market to undercut prices from competitors.

Paul Waterson, from the Scottish Licensed Trade Association, said there are “grave concerns” that the deal would create a “monster tie” which could destabilise the public house industry.

Mr Waterson called on the Competition and Markets Authority to scrutinise the potential tie-up, saying the “backwards move” would “be bad news for brewers, whose route to market will almost certainly be controlled by Heineken”.

Under the terms of Heineken’s proposed deal, Patron Capital Advisers, which is acting as go-between, would carry out the takeover and Heineken would then buy around 1,900 pubs from Patron immediately, leaving Patron with about 1,300.

But the looming questions over competition could delay and complicate a Heineken acquisition, offering an advantage to Mr McIntosh’s counter-bid, which has not yet secured funding.

Mr McIntosh will be hoping to draw from a pool of big-name financial backers who helped raise £280m to found Irish property developer Cairn Homes, which he listed on the London Stock Exchange last summer and is now valued at €800m.

Emerald, which together with fellow members in its concert party own a 2.2pc stake in Punch, issued a statement last night confirming it reserves the right to lower its mooted 185p-a-share price to take into account any future dividend Punch may declare or were a third party, namely Heineken and Patron, were to receive a recommendation from the Punch board at a lower price.

The takeover rivals are expected to continue talks behind closed doors, but one source indicated, given the progress Heineken and Patron have already made, an offer could come this side of Christmas.

Under Takeover Panel rules, the two sides have until  Jan 11 to make a firm offer, or walk away.

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