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Battle brews for U.K. pubs
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May 4, 1999: 6:48 a.m. ET
Rivals tackle Whitbread's $3.7B plan to buy 3,500 Allied-Domecq taverns
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LONDON (CNNfn) - The prospect of a bidding war in the U.K. pub sector drove shares in the spirits company Allied Domecq sharply higher Tuesday after rivals promised to top the offer made for its 3,500 bars by Whitbread.
On Monday, Whitbread and Allied revealed exclusive talks on the possible sale of the pubs for around 2.3 billion pounds ($3.68 billion).
But the Financial Times said rivals, including Punch Taverns and Unique Pub Co., indicate they would consider a direct approach to Allied shareholders if Allied management sought to sign a deal without conducting an auction.
Whitbread: hoping to pull more pints?
Whitbread's exclusivity clause will fall away if the group makes a formal bid. But analysts are surprised by Allied's strategy, which some say undervalues the retail pub business because of the company's complex corporate structure.
Allied is the world's second-largest distiller and has extensive retail interests. Margins in its pub business have been eroded by poor market positioning and an emerging price war in the U.K. pub sector, analysts said.
Allied Domecq shares jumped 10.9 percent Tuesday to 537 pence in heavy trading following a market holiday in the United Kingdom Monday. Whitbread (WTB) shares climbed 3.64 percent to 1,095 pence.
Pub sector restructuring
The U.K. pub sector has gone through a massive restructuring over the past three years after regulators forced brewing companies to slash their ownership of the country's 60,000 pubs.
The major brewers are allowed to maintain management contracts in pubs, and have moved out of smaller outlets to focus on managing larger more profitable taverns.
The gap has been filled by acquisitive finance companies, including Nomura Securities and Bankers Trust, that have snapped up large portfolios of pubs and financed the purchase with the securitization of rents and beverage sales.
Whitbread said it would finance the purchase of Allied's portfolio with an equity issue. But Rob Marshall, corporate analyst at the Duff & Phelps rating agency, said a number of pub owners were planning to launch bond issues in the international debt market.
Analysts said Nomura-controlled Unique Pub and Punch Taverns, controlled by Bankers Trust, are both likely to be floated over the next 18 months.
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Allied Domecq
Whitbread
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