City analyst Geof Collyer predicts Piedmont, the investment arm of Bermudan billionaire Joe Lewis, may struggle to persuade enough other investors in Mitchells & Butlers (M&B) to sell their stakes and facilitate a takeover of the managed pub operator. Piedmont, which currently owns a 22.8% stake in M&B, has been given a ‘put up or shut up’ deadline of 5pm on 17 October to publicly announce its intention to make an offer. Its indicative proposal of 230p per share has been seen as an attempt to buy M&B ‘on the cheap’. Collyer, of Deutsche Bank, reiterated his Hold recommendation for M&B and said: “Assuming that Piedmont actually tables a formal bid by the deadline, investors are likely to find themselves between a rock and hard place; to sell at a price most observers (including ourselves) would see as some way below fair value, or fighting the bid, with the risk of becoming a member of a minority investor group. “Whilst Piedmont holds a strong bargaining position, having acquired most of its stake in M&B at around half the current share price, we feel it may struggle to persuade enough investors to sell at these levels to ensure success.” Collyer said a “weakness” in Piedmont’s plan is asking M&B’s other investors to sell out for a multiple “that represents a significant discount to its peer group”. “Thus the outcome for the group may come down to either (i) enough investors being willing to take stock in a private M&B Ltd; or (ii) volatile markets and economic uncertainty providing enough encouragement to persuade some to accept a cash bid that they might have otherwise turned down; or (iii) enough investors viewing the price offered as insufficient and the bid failing.” Collyer set a target price of 300p for M&B, which included a 10% discount on its average EV/ebitda multiple of 11.7x, “to take into account the current corporate governance issues, which we believe, act as a major impediment to the recruitment of new investors and new management”. He added: “We see most of the downside risks to the M&B story as operational, notably: (i) a failure of the eating-out market to recover from recession and further cost pressures, or (ii) greater top line decline caused by a more economically sensitive consumer next year. "Upside risks would include (i) the appointment of a new CEO with significant retail experience; (ii) Piedmont raising its bid to somewhere that would approximate to fair value.”