Punch pulls plan for a merger with rival

PUNCH Taverns, Scotland's biggest pubs group, said today it had pulled the plug on its solo merger plans with rival Mitchells & Butlers, insisting the deal was "not in the best interests" of its shareholders.

However, the group, which is behind bars such as Scotsman Lounge, Ensign Ewart, Bonnington Bridge, and the Caley Sample Room, said that it would still look at a the possibility of having another go at M&B in concert with a third party partner.

Punch, which is Britain's biggest landlord with around 8000 bars across the UK, outlined its merger proposal to M&B – whose Capital portfolio includes Deacon Brodie's, the White Hart Inn, Sheep Heid, Greyfriars Bobby and the Kenilworth – on February 4, despite stating last November that it was not eyeing up M&B.

Had a deal been done, Punch would have boosted its estate by almost a quarter to around 10,400 outlets, while adding the popular chains All Bar One, Harvester and O'Neill's to its stable.

But today, after examining M&B's books, Punch said: "Subsequent preliminary discussions with, and preliminary due diligence on, Mitchells & Butlers have led the board of Punch to conclude that the terms proposed to Mitchells & Butlers are no longer in the best interests of Punch shareholders and therefore Punch is withdrawing its merger proposal."

The group said, however: "Punch has been approached by a number of third parties in relation to possible transactions involving Mitchells & Butlers which may or may not result in an offer for, or other transaction with, Mitchells & Butlers."

It said it would examine these approaches to see if it would produce a better deal for its investors and would update the City in due course, "if appropriate".

Under City rules, any follow-on offer would have to be on "less favourable" terms than Punch's initial proposal, which was valued at around £175 million.

Punch did not say who had approached it but there is speculation among analysts that it is primarily coming from private equity firms, such as CVC and Blackstone.

Giles Thorley, Punch's chief executive, is currently chairman of Blackstone-owned Tragus, which runs restaurant chains Cafe Rouge and Strada.

Last year, M&B saw 40 per cent of its market value wiped off after dumping plans to sell pubs to a venture with billionaire property investor Robert Tchenguiz, one of the group's main shareholders. In December, M&B was demoted from the FTSE 100.

Meanwhile, Enterprise Inns, Britain's second biggest pub company, said today it expected to be able to convert to a low-tax Real Estate Investment Trust (REIT) as it warned of tough trading in the wake of the smoking ban's introduction south of the Border last year and belt-tightening among consumers.