The Bermudan billionaire Joe Lewis has been accused of trying to buy Mitchells & Butlers on the cheap after indicating that his Piedmont investment vehicle is thinking about tabling a 230p bid for the 77% of the company he does not own.
Piedmont disclosed that an earlier proposal was turned down by the board. The 230p offer values the company at around £940m or just under £3bn including the net debt of £1.9bn.
The company called on investors to reject the offer on the basis that 230p “significantly undervalues the company”.
Piedmont was forced to make a statement at 6.22pm last night after market rumours of a possible bid had led to a 15.5p upward bounce in the company’s shares.
The statement from Piedmont said: “Piedmont confirms that it has presented a proposal to the board of M&B regarding a possible cash offer, with a partial share alternative, for the entire issued share capital of M&B which Piedmont does not currently own.”
It added that although M&B’s board has turned down the offer, it was now “considering” whether it will make a further offer proposal at 230p per M&B share.
The statement did not make it clear how much it offered, but M&B had made it clear there had been an earlier offer of 224p per share – M&B shares were trading at 361p each at their height at the start of 2011.
Observers claimed the approach required an investigation by the Takeover Panel as to whether there was a “concert party” at M&B between Joe Lewis and John Magnier and JP McManus, whose Elpida investment company holds a 20% stake in the business.
One source told M&C Report: “The offer comes as M&B is weakened with an interim chief executive and chairman and a below-strength board. The current share price reflects the current instability within the boardroom – it looks like Joe Lewis is trying to buy the company on the cheap.”
Some believe the situation at M&B now mirrors the position at Rank where the Malaysian tycoon Quek Leng Chan was able to use his 29% stake in the business to take control of the company.
The current boardroom situation at M&B is the latest episode in a five-year saga of instability.
Robert Tchenguiz built up a 22% stake in the business and was instrumental in persuading the company to pursue a split of its property and operational interests, which led to hedging losses of almost £500m. Lewis bought Tchenguiz’s stake in October 2008 for 130p a share after his bank Kaupthing forced a sale amid the depths of the Icelandic banking crisis.
Inside Track: By Paul Charity
The Mitchells & Butlers saga takes another twist. The offer by Piedmont to mop up the remainder of the company’s shares was widely regarded as a possible next move in this soap opera. Few can have imagined that Piedmont’s offer would be so cheekily low.
Indeed, the newspaper speculation yesterday was that an offer of 460p would be tabled. Sources close to Piedmont were suggesting overnight that the company was going “sideways operationally” and the proposal was aimed at “stabilising” the business.
The irony, of course, is that Piedmont has been at the heart of the constant changes of personnel in the M&B board. Last year, the market was warm to the strategic plan being pursued by its chairman John Lovering and then chief executive Adam Fowle. But even then there were rumours of turmoil behind the scenes.
The suggestion is that Joe Lewis opposed the plan to sell 333 wet-led pubs to private equity firm TDR Capital. And this year, sources also claim that Lewis blocked the sale of the M&B franchise division of 62 pubs earlier this year in the belief that the company could obtain more from them in a few years’ time.
One insider told M&C Report: “It’s clear that Joe Lewis bought into M&B to make money – it’s not clear that he’s got a plan to make it more successful. Once the company had a strategy around the expansion of the key brands, management should be allowed to deliver it.”
What’s clear is that the Takeover Panel powers are woefully inadequate in dealing with a situation where a minority shareholder (or shareholders) is exercising such influence.
One source said: “The rules on concert parties are so convoluted that nobody understands them. And even if the Takeover Panel ruled that there is a concert party at M&B, there is only one remedy – the tabling of a bid for the entire company at the last price you bought shares for.”
M&B seems forever mired in the problems that flow from a de-normalised share register. Operationally, it has remained unremarkably unaffected by the boardroom shenanigans of the past half-decade. But it’s striking how quickly performance can slip in a complex business like this.
And for now, in performance terms, M&B has lost its position at the top the managed pub leadership board. Meanwhile, its smaller shareholders can only look on as their larger brethren perform a merry dance with the rules of corporate governance.
