Two potential deals are keeping City gossip hot at the moment, but they are very different types of bid. One company is categorically saying no to an offer while silence rules the other tender, Dominic Walsh tells all

Well, fancy that. M&A is back with a vengeance! Not only is the trickle of private equity exits in danger of turning into a babbling brook, we have two surprise bids for quoted companies in the shape of Greene King going for Spirit Pub Company and Advent and TPG Capital having a pop at Prezzo.

I was going to say “unsolicited” bids for quoted companies, but in the case of Prezzo the situation is by no means clear. Given that the two private equity firms are, amazingly, offering no premium for the company, it seems inconceivable that the Kaye family are not, to a greater or lesser extent, onside with their suitors.

While Spirit behaved as you would expect a company on the end of an unsolicited bid to react, by telling Greene King to get on its bike, Prezzo – despite the nil-premium – failed to declare the buy-out firms’ opening gambits to be too low.

Instead, it was left to the market to blow a raspberry. After an initial jump of more than 8%, when traders read the statement more carefully and realised that any offer was “unlikely to be at a premium” to the previous evening’s close, they sent the share price back below the mooted 135p price.

Comparing contrasting deals

One source tried to tell me that, even with the shares drifting off March’s record high of 164p, the share price still represented a pretty full value and the directors of Prezzo were duty bound to see where the interest of Advent and TPG took them. Maybe so, but you can guarantee that, having pitched their opening shot at or below the prevailing share price, valuing the group at a little over £300m, the private equity duo are highly unlikely to raise the level by much.

All of which is a far cry from when Adam and Sam Kaye, who are intimately involved with Prezzo, sold their ASK and Zizzi businesses to what became Gondola a decade ago for a very acceptable 25% premium. Mind you, on that occasion they were selling out and heading off into the sunset, so it made sense to push for the highest possible price, whereas if they want to remain involved with Prezzo they wouldn’t want to take it private at too high a multiple. I also don’t believe that the Kayes want to put Prezzo together with ASK and Zizzi, despite suggestions to the contrary.

One veteran casual dining operator told me he reckoned it was obvious what was happening. “Prezzo has no debt,” he said.

“This is effectively a move to refinance the business with, say, £150m of debt while taking at least a couple of hundred million off the table, depending how much the private equity firms put in.”

Of course, such speculation may be wide of the mark. While Jonathan Kaye, cousin to Adam and Sam and nephew of Phillip, who owns the biggest chunk of shares, is still only in his mid 30s and might be keen to keep his job as chief executive, he has run the business since 2000 and might just fancy taking his cash out altogether and trying his hand at something completely different.

Whatever the truth of the matter, a bit of clarity on what the Kayes are thinking might not go amiss. Investors hate the feeling of being kept in the dark and the initial statement, which did not even make it entirely clear whether Advent and TPG were working together or separately (they’re bidding separately), poses too many questions for most shareholders’ liking.

The contrast with Spirit could not be more stark. The Chef & Brewer’s stock exchange statement was unequivocal. It had received an offer of 100p a share, the board considered it for a few days before telling the Greene King chief executive Rooney Anand what he could do with his offer. 

It then carefully explained its rationale for rejecting the advances by outlining the recent strong trading – “market leading like-for-like growth and attractive returns on investment” – and explaining its future strategy. To ram it home, it added: “The board remains fully confident in the ongoing execution of Spirit’s strategy as an independent company and that its successful delivery and strong balance sheet will create significant value for shareholders.”

Now that’s a clear message if ever there was one. To its shareholders it is saying they should have no fears that the company will be sold on the cheap. To the Abbot Ale boys it is saying, we don’t want to be taken over by you but if you do want to buy our company, you’re going to have pay a premium price for a premium company with premium prospects.

That’s how to deal with shareholders, and indeed suitors, fair and square. Or should that be Fayre & Square?

Potential rival bidders

How will the Greene King assault on Spirit play out? Well, my view, for what it’s worth, is that Mr Anand will get the prize. Despite much talk of counterbidders, I can’t see any of the obvious candidates entering the fray.

Stonegate Pub Company, backed by TDR Capital, is the stand-out candidate, but word is the company reckons there is not much point spending money on putting together a bid when the chances are it would be trumped by Greene King. What’s more, I understand Stonegate took a very detailed look at Spirit a year or so back when the shares were much lower, yet still couldn’t make it stack up.

The other potential rivals to the Hungry Horse operator are Marston’s and Mitchells & Butlers. Marston’s, though often regarded as a Greene King me-too, has for some years now been ploughing its own new-build and franchised furrow and has neither the appetite nor the financial wherewithal to swallow the whole of Spirit.

M&B, meanwhile, is still busy digesting the £266m Orchid acquisition and although he wouldn’t comment directly, chief executive Alistair Darby made it pretty clear at the group’s recent trading update that he’s got his hands full with integrating Orchid and that’s where his focus remains.

Private equity interests

Ruling out a counter move by private equity is not quite so straightforward. Both Colony Capital and Starwood were very keen participants in the Orchid auction and probably only missed out because of the synergies available to M&B coupled with Mr Darby’s urgent need to pep up the core group’s frustratingly pedestrian performance, despite the transformation he has wrought. That said, neither Starwood or Colony will be keen to spend a lot more money on pursuing Spirit only to see Greene King swoop and seize it.

There’s also Mr Anand’s determined character to take into account. In the nine years since he took the helm in Bury St Edmunds, very few targets have slipped through his net. It has been said, a little unfairly, that he has never knowingly underpaid for any of his many acquisitions, although he will always insist that he paid a fair price for a good business.

In fact, one of the few deals to escape his grasp in recent times is probably Orchid, which will make him more determined to snare Spirit. It may cost him 120p a share, but Anand’s track record of making acquisitions work (with the possible exception of Loch Fyne) suggests to me that he will be determined not go home empty handed.

Dominic Walsh is leisure industries correspondent at The Times.