Following the shock news yesterday that Stonegate has announced its intention to acquire Ei Group, MCA’s Georgi Gyton caught up with Ei’s chief executive Simon Townsend, and chairman Robert Walker to find out what it means for both businesses.

How did the deal come about?

Robert Walker: We have every confidence that our strategy has worked, and we’d be happy as a board to continue with that strategy… however, I was having a cup of coffee in Toronto with an old friend of mine when I had a call out of the blue on my mobile from Ian Payne of Stonegate asking if we could talk. We got an offer the following week of £2.70 per share, which we turned it down, they came back with a higher offer, we turned that down, and it was only when they got to £2.85, the current number, that we realised that we had to start talking to them.

We took assurances from them on their commitments to our stakeholders, publicans, lessees, suppliers, and employers. At that stage we decided we had to engage and we engaged at that price. Because at that price we were giving our investors a future share price now, and our numbers clearly demonstrated that. It took two months. For the first month we didn’t engage until we got to that number and since then it’s been pretty frenetic.

Simon Townsend: Clearly this was an unsolicited approach but once we had achieved an offer price which we felt properly reflected the fundamental values of the business we did engage and we’ve engaged very intensely with the buyer ever since.

The board has been absolutely unanimous in the manner in which we firmly rejected the initial approaches and offers, but equally the manner in which we have firmly engaged in order to seek an outcome we believe is in the best interest of shareholders, but equally securing intentions that we think are in the best interests of the wider stakeholders.

Had Ei been prepared for such an offer?

Walker: You’ve got to be constantly aware that these things may happen and as the business improved we knew we were likely to become more attractive so we have been on alert for at least a year now.

It can always surprise you in terms of the timings, but the event you should be fully prepared for, in terms of your planning, how you react to it and what the appropriate value of the business is at the at that point in time, and we were prepared for all of the above.

Why do you believe Stonegate is such a good fit to take on Ei?

Townsend: When you combine two substantial businesses that have complementary skillsets, albeit businesses developing strategies in very different ways – Stonegate with an 100% managed estate rolling with different format, and us with many more pubs, several operating models, but no branded formats – you can bring synergies and benefits that wouldn’t be available to us were we to remain on our own.

I think the degree to which Stonegate can accelerate our strategy of conversion to managed pubs is clearly something we wouldn’t be able to do on our own. We have been converting around 100 pubs a year, investing very substantially in those businesses. It was a self-imposed limit but indeed it was capacity in terms of what we could do. They bring a track record of investment and they are clearly a business which has been outperforming the market, as have we, and I think if you put those two complementary skillsets and compatible businesses together you can create something even greater with good growth prospects and an ability to secure efficiencies and incremental benefits that wouldn’t have been available to us on our own.

What would you say the key benefits will be to customers?

Townsend: I think what Stonegate will bring is real customer insight, from operating 100% managed business across the UK in different formats, and that they will be able to bring insights that are ahead of those we have been developing ourselves over the past few years and that has to be in the interest of pubs and pub goers to make sure their local community pubs remain competitive and sustainable.

Stonegate will be able to accelerate that part of our strategy which was designed to grow a manged house business and they will bring investment. They have been able to commit in their intention statement, to continuing to invest in our leased and tenanted business to help and support our tenants ensure that they have got compelling customer propositions.

What will the next steps be in the process?

Townsend: Shareholders will need to vote on the recommendation and offer, which is likely to take place towards the end of September, and there are also anti-trust matters that need to be considered and the necessary submissions made to competition authorities both in the UK and Europe.

If all goes to plan, we might expect completion in the early part of next year, but it could take longer, and until that happens the business remains absolutely focused on the delivery of the strategy that’s been so successful for the past few years. Nothing changes. Stonegate and their owners TDR are buying into that strategy and would expect to maintain and accelerate it.

What will happen with the existing senior management team at Ei Group upon completion?

Townsend: The board, that’s the two executive directors, myself and Neil Smith the CFO, chairman Robert Walker and the non-executives will all stand aside. The future business will be led by the Stonegate management team.

In relation to the wider organisation and management, what Stonegate have said very clearly upfront is that they do not yet have a plan with which to effect the merger of the two businesses and that’s something they will start to consider once completion has occurred and that they don’t expect to put that plan into effect for another six months after completion.

They will want to take a really good look at the business – where our business is having great successes but equally where there are duplications of functions, or functions that we needed as a publicly-listed business that they might not need as a privately-listed one. The clear focus of my management team and everyone throughout our business for the foreseeable future is maintaining the momentum of our business.