A renewed hunger for pubs?

Will the turmoil in global debt markets finally bring an end to the big deals that have so characterised the UK pub market in recent years? Well, you might have thought so. But don’t be too sure. The industry rumour factory is still working hard and the speculation is of a least one more big shake-up in the offing. Mitchells & Butlers, the country’s leading pub and restaurant group, has already seen the turbulence in the debt markets scupper its planned £4.5bn property joint-venture with Robert Tchenguiz’s R20. Ironically, the conspiratorial talk now is of M&B becoming a break-up target, as a result of that property deal being shelved. It is not its pub and restaurant trading that makes the company and its board look vulnerable, but the large potential loss on the interest and inflation rate hedges it put in place as part of the conditions to finance the deal. In September, M&B admitted to it standing at £140m. So who would take a tilt at M&B? Scenario One has Punch Taverns and Whitbread slicing up the spoils, with the latter taking on M&B’s budget hotel business, which operates over 4,000 rooms. Punch boss Giles Thorley is a master deal-maker and Whitbread’s chief executive Alan Parker is also making a name for himself as a deal-doer, having sold off his unwanted pub restaurants to M&B, disposed of David Lloyd Leisure and bought Golden Tulip UK to strengthen his Premier Inn estate. Scenario Two is even more intriguing – and there’s nothing the market likes more than intrigue. This theory only emerged this week with the news that John Magnier and JP McManus, the Irish racing entrepreneurs, had declared a 3.4% stake worth £84m in M&B. Could they be taking a position in preparation for a bid? They happen to be long time business associates of Bob Ivell, the former Scottish & Newcastle Retail boss, who would be the perfect man to front an M&B raid. Ivell may have been quiet on the pub front of late, through his chairmanship of Regent Inns, but he has been busy elsewhere. He is chairman of the Next Generation leisure chain, which this year completed the major £925m acquisition of David Lloyd from Whitbread. M&B CEO Tim Clarke has probably heard all this before and has a good record in fighting off unwanted advances. But that won’t stop the speculation, and if the investment market sees enough upside in a break-up of M&B – possibly even four ways between pubs, restaurants, lodges and property freeholds – anything is possible. A break-up would be the most likely strategy, with Whitbread ready to pick up the hotel pieces, whatever else happens. Doing deals is not just about the money, but about the people, the imagination and the will. Yes, it is all speculation, but it comes at a time when there is some evidence to suggest that pubs, at least those serious about food, are making new inroads into the eating-out market in the wake of the smoking ban. Research carried out for the Peach Factory consultancy only last month suggests that pub restaurants are regaining some of their popularity which earlier polls suggested them beginning to lose to casual dining chains. The pub sector remains an attractive long-term bet, and it is not surprising there are those still wanting to fight over its bigger players – or at least there are those eager to encourage that activity. Peter Martin is co-creator of the M&C Report and founder of the Peach Factory