There'll be more interest than usual paid to the post at Scottish & Newcastle headquarters in Murrayfield this Wednesday, as the preliminary bids arrive in what promises to be a fascinating game of poker. The prize is the Scottish & Newcastle Retail set-up, a collection of pub, restaurant and budget hotel brands and properties worth an estimated £2.3bn being sold by Scottish & Newcastle as it settles down to a life as a dedicated world brewer.
But the game is unlikely to be over when the winning bid is announced later this year. Whoever acquires S&N Retail, a chain of consolidations and/or fracturings is likely to follow. If S&NR is acquired by one of the existing managed pub giants, particularly Mitchells & Butlers, expect a wave of mergers and takeovers among the other big managed chains as they react by trying to grow enough to tackle this newly dominant power on equal terms. If a venture capitalist puts in the biggest bid, there will be plenty of other people offering large sums to the winner to try to buy the juicier grapes in the S&N Retail bunch, such as Chef & Brewer or Premier Lodge.
Already "sources familiar with the situation" are talking up the trade buyers, particularly Mitchells & Butlers, Laurel and Pubmaster, as the only ones to have the synergies necessary to make the highest offers. Except for M&B, the logic here is not entirely clear, especially with Pubmaster, and this argument ignores the possibility that someone might be eager to outbid M&B and, in theory, overpay, simply to stop the Birmingham-based company abrogating to itself even more power brands. In the medium to long term, that might well be a strategy to commend itself: overpay now, in order not to be squashed later. Indeed - this is where the poker comes in - rivals might be keen to try to push up the price and make M&B overpay itself, just to leave less money in its cupboard to spend on marketing and the like.
M&B, which is being advised by Citigroup, is now said to be able to raise all the capital needed to bid for S&N on its own, and is therefore not linking with any of the venture capital companies lining up to participate. The latest rumour is that M&B plans to link with Whitbread to mount a joint bid for the package of outlets, which include 240 lodge hotels. Whitbread is said to be waiting to see if it can buy Premier Lodge from the successful bidder, and has not yet appointed advisers, it is reported. One hurdle M&B has to overcome is the friction said to exist between its own senior management and the top bosses at S&N Retail. The cost of potential uproar and upsetment at Northampton after an M&B victory will have to be factored in.
Laurel, which is advised by Rothschild, is also funding its bid on its own, according to supposedly informed sources. However, Laurel senior management, while admired by many (Ian Payne, its chief executive, is said to have had more nominations for the Pub Industry Award in this year's Cateys than all the other candidates put together) would be a distinctly junior partner, and it is difficult to see the company's operation fitting in easily with S&N Retail.
A similar argument can be made against Spirit, which has links with a number of possible venture capital backers and is being advised by Merrill Lynch. Spirit could team up with its own private equity backers, Texas Pacific Group, CVC and Soros Private Equity, to make a consortium bid.
Pubmaster, which is being advised by WestLB, its regular adviser and 22% owner, is said to be discussing financing options with WestLB and with Lehman Brothers, which owns another 8% of the group, among others. It has expressed an interest in "the potential acquisition of the whole or part of the Scottish & Newcastle managed retail estate". Pubmaster has experience in running managed pubs, but mostly as part of a road to converting them to tenancies.
Of the likely pure venture capital players, Candover will be making a bid on its own, as will BC Partners, which has retained Lazard, which advised on its £2.8bn offer for M&B, and Blackstone, while Cinven and CVC will be making a joint bid, advised by Goldman Sachs, it is said. Goldmans advised CVC on its look at Mitchells & Butlers.
Scottish & Newcastle is not expected to declare a winner until the end of the year. Expect plenty of spin, leaks and intrigue between now and then.
But the game is unlikely to be over when the winning bid is announced later this year. Whoever acquires S&N Retail, a chain of consolidations and/or fracturings is likely to follow. If S&NR is acquired by one of the existing managed pub giants, particularly Mitchells & Butlers, expect a wave of mergers and takeovers among the other big managed chains as they react by trying to grow enough to tackle this newly dominant power on equal terms. If a venture capitalist puts in the biggest bid, there will be plenty of other people offering large sums to the winner to try to buy the juicier grapes in the S&N Retail bunch, such as Chef & Brewer or Premier Lodge.
Already "sources familiar with the situation" are talking up the trade buyers, particularly Mitchells & Butlers, Laurel and Pubmaster, as the only ones to have the synergies necessary to make the highest offers. Except for M&B, the logic here is not entirely clear, especially with Pubmaster, and this argument ignores the possibility that someone might be eager to outbid M&B and, in theory, overpay, simply to stop the Birmingham-based company abrogating to itself even more power brands. In the medium to long term, that might well be a strategy to commend itself: overpay now, in order not to be squashed later. Indeed - this is where the poker comes in - rivals might be keen to try to push up the price and make M&B overpay itself, just to leave less money in its cupboard to spend on marketing and the like.
M&B, which is being advised by Citigroup, is now said to be able to raise all the capital needed to bid for S&N on its own, and is therefore not linking with any of the venture capital companies lining up to participate. The latest rumour is that M&B plans to link with Whitbread to mount a joint bid for the package of outlets, which include 240 lodge hotels. Whitbread is said to be waiting to see if it can buy Premier Lodge from the successful bidder, and has not yet appointed advisers, it is reported. One hurdle M&B has to overcome is the friction said to exist between its own senior management and the top bosses at S&N Retail. The cost of potential uproar and upsetment at Northampton after an M&B victory will have to be factored in.
Laurel, which is advised by Rothschild, is also funding its bid on its own, according to supposedly informed sources. However, Laurel senior management, while admired by many (Ian Payne, its chief executive, is said to have had more nominations for the Pub Industry Award in this year's Cateys than all the other candidates put together) would be a distinctly junior partner, and it is difficult to see the company's operation fitting in easily with S&N Retail.
A similar argument can be made against Spirit, which has links with a number of possible venture capital backers and is being advised by Merrill Lynch. Spirit could team up with its own private equity backers, Texas Pacific Group, CVC and Soros Private Equity, to make a consortium bid.
Pubmaster, which is being advised by WestLB, its regular adviser and 22% owner, is said to be discussing financing options with WestLB and with Lehman Brothers, which owns another 8% of the group, among others. It has expressed an interest in "the potential acquisition of the whole or part of the Scottish & Newcastle managed retail estate". Pubmaster has experience in running managed pubs, but mostly as part of a road to converting them to tenancies.
Of the likely pure venture capital players, Candover will be making a bid on its own, as will BC Partners, which has retained Lazard, which advised on its £2.8bn offer for M&B, and Blackstone, while Cinven and CVC will be making a joint bid, advised by Goldman Sachs, it is said. Goldmans advised CVC on its look at Mitchells & Butlers.
Scottish & Newcastle is not expected to declare a winner until the end of the year. Expect plenty of spin, leaks and intrigue between now and then.
