Punch Taverns Pulls Out Of Move To Merge With Mitchells & Butlers

The chances of a takeover of Mitchells & Butlers (M&B), the embattled All Bar One and Ember Inns operator, receded yesterday after the withdrawal of a merger proposal by Punch Taverns.

Punchs move, which came before last nights deadline for offers, makes it likely that M&B will retain its independence, although one private equity firm, thought to be Permira, was believed to be considering a proposal to make a significant minority investment in the company.

None of the mooted private equity firms circling M&B was expected to submit a cash bid by the deadline. The list of potential suitors includes Cinven, Apax Partners, Terra Firma, Blackstone, TPG, Kohlberg Kravis Roberts and a consortium involving Blackstone and CVC Capital Partners.

Punch, which is being advised by Goldman Sachs, left the door open to a fresh move by declaring that it had been “approached by a number of third parties in relation to possible transactions involving Mitchells & Butlers”.

Analysts suggested that Punchs actions were designed to take the edge off the M&B share price with a view to returning with a lower offer, which would have private equity backing, possibly from Blackstone and CVC. However, it would be able to make a reduced offer only with the approval of the M&B board.

In a statement explaining its withdrawal, Punch said: “Preliminary discussions with, and preliminary due diligence on, M&B have led the board of Punch to conclude that the terms proposed to M&B are no longer in the best interests of Punch shareholders.”

Although Punch refused to comment further, industry sources said that it had been disappointed at the level of information provided by M&B: “Due diligence has got them no further forward than they were two months ago. M&B simply werent willing to engage properly. They give every impression of wanting to remain independent.”

A source close to the M&B camp insisted the company was fully committed to an open process. “There is an obligation to be receptive to any and all proposals. We are prepared to listen to anything and it is simply wrong to suggest that we have not engaged.”

It is almost two months since Punch approached M&B with a merger proposal that would have given the enlarged business more than one in six of Britains pubs. M&B shareholders would have accounted for 50 per cent of the shares and received a £175 million cash sweetener.

Despite the estimated £50 million of synergies from merging M&B with Punchs Spirit-managed pub division, some Punch shareholders balked at the dilutive impact on its earnings.

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

Shares of M&B rose 13p to 342p, while Punch climbed 35p to 554p.

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