Deltic has set out the terms of its proposed merger with Revolution Bars Group.

In a counter-bid to Stonegate’s £101.5m cash offer for Revolution, Deltic and its holding company Ranimul 1 is proposing a merger that would see an enlarged group keeping its public listing.

The proposed merger would see Deltic own 35% of the enlarged group, with the rest owned by Revolution’s shareholders.

Deltic said it had identified synergies of £7.7m - made up of annual pre-tax cost synergies of £6.8m and pre-tax financing synergies of approximately £900,000.

It is proposed that Bob Brannan, Peter Marks and Alex Millington, respectively Deltic chairman, chief executive and group finance director, would take similar roles in the enlarged group.

Deltic said the enlarged group would be highly cash generative and financed conservatively with gearing no higher than 1.5x adjusted EBITDA.

Marks told MCA that Deltic’s revised proposal represented the best deal for Revolution shareholders and underpinned his view that the Stonegate bid undervalued the company. He said that if the deal gained approval from shareholders and was treated as a Class 1 transaction it could go through before Christmas.

On the rationale for the group, Deltic said: ”The combination of Revolution and Deltic would create a strong business of significant scale and expertise in the UK’s late night market, with both entities exhibiting a similar modus operandi.

The town centre market remains fragmented and a combination of Deltic with Revolution will be well placed to penetrate their local markets alongside other operators of scale such as Wetherspoons, Stonegate and Mitchells & Butler.”

In support of its bid, Deltic pointed to its own EBITDA growth – from £7.3m to £13.6m between February 2013 and February 2016. It admitted growth in the following year had been more muted but said it was seeing strong early demand from returning students and for special events such as Halloween and Christmas, and current like for like revenue performance on the core weekend nights was very strong. The group said that with refurbishment capex forecast to decrease, it has now built a pipeline of potential sites and expansion opportunities and is as such forecasting to return to accelerating growth in the year ending February 2019 - when it expects revenue to hit £108.4m and adjusted EBITDA £16m.

On the approach by the Revolution board to Deltic’s approach, the latter said: “Ever since Deltic’s first approach to Revolution, Deltic has been disappointed by Revolution’s level of engagement: a short initial delay in granting Deltic access to due diligence as required under the Code; an instant dismissal of the idea that a merger could be in the interests of Revolution shareholders; and finally, once tabled, a complete rejection of Deltic’s formal Merger Proposal with an indication that there was no scenario under which a Deltic/Revolution merger would be more attractive than the Stonegate offer. Only belatedly, subsequent to Deltic’s announcement on 20 September 2017, has Revolution indicated any interest in conducting due diligence on Deltic but whilst also reconfirming that its directors’ interest in pursuing Deltic’s proposal had not changed. Given the attitude of Revolution towards Deltic’s proposal, Deltic did not at that time see any merit in providing due diligence access.

“Accordingly, Deltic has determined that the Merger Proposal, improved from the only proposal tabled to Revolution’s board, is best shared directly with Revolution shareholders as it is they who ultimately need to determine the future of Revolution rather than its directors. In order to enable Revolution to form its own opinion on the Merger Proposal, Deltic has also now granted due diligence access on its business to Revolution.”