Punch Pulls Merger Plan For Mitchells & Butlers

Punch Taverns, Britains biggest pubs company, said today that it had dropped its takeover attempt for the rival Mitchells & Butlers (M&B), the owner of the All Bar One and Harvester chains, although it left the door open to a fresh move in tandem with a third party.

M&B shares dropped by more than 4 per cent to 315.75p in early trading, but by early afternoon they had recovered, trading up 4.5p to 334p.

Punch said in a statement: 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.”

It added, however, that it had been approached by a number of third parties proposing either an offer or another transaction with M&B, although it did not name them.

Punch is assessing whether any such proposal would maximise value for Punch shareholders, it said.

However, Times Online understands that Punch is nolonger considering an immediate move on M&B and that its statement has been worded to ensure it is not precluded from returning with an offer in the event of a collapse in the M&B shareprice in the next six months.

Punch approached M&B with an £11 billion merger proposal last month, in a move that would have given the enlarged business more than one in six of the pubs in the UK.

M&B has said that it was considering the proposal, alongside other expressions of interest from private equity groups thought to include Cinven, Apax Partners, Terra Firma, Blackstone, TPG and Kohlberg Kravis Roberts.

M&B has given the groups until close of play today to submit indicative offers, although none of the firms is believed to be working on a cash bid. Analysts believe a partial offer, whereby a private equity firm would take a significant minority stake, is a possible outcome.

The approach from Punch came after the decision by M&B to close a hedging facility taken out before its aborted property joint venture with Robert Tchenguiz, the property tycoon.

M&B lost £391 million on the hedge, which led to the resignation of Karim Naffah, its finance director, and prompted it to launch a strategic review.

Its share price has since tumbled on concerns over its liquidity position.

Punch had said that it would give M&B shareholders 50 per cent of the combined company and a £175 million cash sweetener.

However, in recent weeks Punch was understood to have become unconvinced of M&Bs desire for a sale and was considering its position.

Sources close to M&B told The Times yesterday that the pub company would consider any legitimate proposal, including an all-cash offer, a cash and stub equity offer or a partial offer.

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