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E-Malt.com News article: UK: Heineken in advanced talks to buy British pub company Punch Taverns
Brewery news

Heineken is in advanced talks to buy Punch Taverns, Punch said on December 14, but the Dutch brewer faces competition from a higher rival bid from a fund backed by one of the British pub company's founders, Reuters reported.

Shares in Punch, Britain's second-biggest pub operator, jumped as much as 39 percent on Wednesday, December 14 after it said it had received a "proposal" from Patron Capital Advisers, working with Heineken, about a possible cash offer of 174 pence per share, and "an approach" from Emerald Investment Partners about a possible cash offer at 185 pence per share.

Punch said it was in "advanced discussions" with Patron and Heineken and in "discussions" with Emerald. Officials for Patron and Heineken declined to comment.

Emerald confirmed that it had made a proposal about a possible 185 pence per share offer and said it currently held 2.2 percent of Punch's shares.

Emerald's founder, Alan McIntosh, is the former Punch finance director who helped to build up the company through a series of acquisitions alongside entrepreneur Hugh Osmond.

Heineken's offer values Punch's equity at about 386 million pounds ($488.95 million) while Emerald's offer would equate to a 410 million pound valuation, according to Reuters calculations.

Punch said that both proposals were conditional on the recommendation of its board, among other things, but that Emerald's also depended on it arranging committed financing and doing due diligence.

The bidders have until Jan. 11 to make a firm offer or walk away, according to UK takeover rules, Punch said.

Established in 1997 with a portfolio of pubs from the Bass Lease Co, Punch expanded through the purchase of Inn Business Group and real estate from Allied Domecq. It listed on the London Stock Exchange in 2002 and now has about 3,300 pubs.

A takeover by Heineken, which already has about 1,100 pubs, would put the Dutch brewer nearly neck and neck with market leader Enterprise Inns, which has nearly 4,500 UK pubs.

The UK pub industry has struggled for years with declining customers, due parlty to a UK smoking ban and increased competition from restaurants and supermarkets. There were 50,800 pubs in Britain last year, the British Beer and Pub Association says, down from 67,800 in 1982.

Punch and its large rivals, which also include Greene King and Mitchells & Butlers, have also been working to broaden their food and drink offering to appeal to Britons' evolving tastes.

But Punch recently scaled back its portfolio with disposals that delivered net proceeds of 234 million pounds in the year to Aug. 20 and performance has improved.

Pub operators are also adjusting to new regulations that give pub tenants more rights and greater protection when dealing with large companies that own so-called tied pubs.

Tenants of tied pubs, which account for most of Punch's portfolio, are obliged to buy beer and other drinks from their landlords. This means that Britain has a long history of brewers operating pubs but the large multinational brewers are generally not in the pub business.

Heineken is unusual in that it has an existing portfolio of about 1,100 pubs, most bought from Royal Bank of Scotland in 2011. A Punch acquisition would roughly quadruple the number of Heineken pubs selling the Dutch group's beers, including Amstel, Sol and Lagunitas alongside Strongbow cider and its green-bottled Heineken lager.

In a presentation last month, Heineken's president of Europe lauded its pub business for providing direct contact with consumers, allowing the company to test and build new products quickly while giving it an understanding of how customers and pubs work.

"You actually get a direct, a very direct and a very different contact with your consumer," Stefan Orlowsky said, adding that the pub business is very attractive from a margin perspective.

Jefferies said that Heineken's approach could be viewed as a defensive move aimed at protecting margins in Britain, which accounts for about 6 percent of group profit.

Other consumer goods companies have taken similar steps into the retail sphere, with Nestle running Nespresso coffee boutiques, Estee Lauder operating MAC cosmetic stores and Diageo testing Johnnie Walker Houses. Patron Capital, with 3.4 billion euros ($3.62 billion) of capital across several funds and investments, focuses largely on real estate.

Punch shares were up 38 percent at 178 pence by the close, while Heineken shares closed flat.

Punch is being advised by Goldman Sachs.

News of the bid approaches was first reported by Sky News.


14 December, 2016

   
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