PUNCH TAVERNS is expected to confirm as early as today that it is in preliminary talks with the rival Spirit Group over a £3 billion deal that could reunite the managed and tenanted pubs of the original Punch Taverns.
Giles Thorley, chief executive of Punch, made an approach to Spirit earlier this month and has asked the company to consider a deal between the pub groups instead of a flotation.
Mr Thorley has made no secret of his desire to acquire some of Spirit’s pubs, should the company decide not to pursue an initial public offering (IPO). Drinks industry analysts said yesterday that it looked as though Punch, Britain’s second-biggest pubs group, had decided to put a proposal to Spirit before another rival, such as Enterprise Inns, made an approach.
Punch is thought to be interested in converting about 1,200 of Spirit’s 2,000 managed pubs to tenanted operations. It could then sell the remaining 800 pubs to another competitor, such as Mitchells & Butlers, the All Bar One owner, or to Whitbread.
Punch needs to do a deal to give it comparable scale to Enterprise Inns, Britain’s biggest pub landlord which now has 8,700 pubs. A spokesman for Punch refused to comment.
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Tim Clarke, chief executive of Mitchells & Butlers, has recently said that his company would be interested in buying Spirit’s “top half” – such as its 132 Chef & Brewer pubs, acquired previously from Scottish & Newcastle.
Mitchells & Butlers, the UK’s biggest managed pub and restaurant operator, is understood to have taken no action as yet, but would look at the biggest operations in the Spirit Group estate if they became available.
The pub operator is expected to find it easy to convince investors of the deal’s merits, as it has been trading well throughout the current consumer downturn with like-for-like sales in the first half of the year ahead of the industry trend. However, industry sources played down suggestions that Mitchells & Butlers would make a counterbid for the whole group.
Punch Taverns, then led by the pubs to pizza entrepreneur Hugh Osmond, acquired Allied Domecq Retail in 1999 in a ferocious battle with Whitbread. After the deal it separated its tenanted and managed pubs into two divisions. Punch Taverns, the tenanted arm, was floated and Punch Retail, the managed pub group, changed its name to Spirit Group.
Spirit is jointly owned by Texas Pacific Group, Blackstone and CVC Capital, the private equity firms, and Merrill Lynch, the investment bank. After demerger from Punch, it bought Scottish & Newcastle Retail for £2.5 billion and followed the deal with a £2.1 billion refinancing and two sale-and-leaseback deals that raised £675 million.
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Spirit is now selling a parcel of 178 high street pubs and bars, with a value of about £200 million, in readiness for an IPO.
Punch has been expanding aggressively and has a £500 million war chest for acquisitions.
Industry watchers will also expect Enterprise Inns to express interest in the Spirit Group, although its chief executive recently indicated that last year’s £2.3 billion purchase of the Unique Pub Company was likely to be his last large deal.