Punch Taverns has announced full terms and conditions of its proposed demerger into two separate listed companies, Punch and Spirit Pub Company, which it expects to become effective on 1 August. The demerger is conditional upon the approval of Punch shareholders at a general meeting to be held on 26 July. The group said that if the demerger proceeds, Punch shareholders who are registered on the Punch share register at the time of the demerger will receive one Spirit ordinary share for each Punch ordinary share then held by them. Punch shareholders will continue to own their existing Punch ordinary shares. It said that following the demerger, it is expected that the Spirit ordinary shares will have a premium listing on the Official List and be admitted to trading on the London Stock Exchange, while the Punch ordinary shares will retain their premium listing on the Official List and will continue to be traded on the London Stock Exchange. The company said that after the payment of certain costs relating to the demerger, the cash and bonds held by Punch have been allocated between Spirit and Punch. As at 30 June, Punch Group had total financial resources of £346m, of which £111m of restricted cash was held within its three securitisations. The group said it held unrestricted liquid resources of £235m, of which £30m will be used for demerger costs, £92m allocated to Punch and £113m allocated to Spirit. It said that the purpose of this allocation was to provide each business with “the appropriate financial resources and flexibility to deliver its strategic objectives and growth as well as to support their respective working capital requirements”. Ian Dyson, chief executive of Punch Taverns, said: “We are pleased to announce the formal intention to demerge Spirit. This will create the foundation for both Spirit and Punch to execute their plans to deliver long term sustainable value for all of our stakeholders and builds on the significant progress that both businesses have made over the last year.” Spirit’s board will comprise Dyson, chief executive; Mike Tye, chief operating officer; Russell Margerrison, interim finance director; non-executive chairman Walker Boyd; and non-executive directors Mark Pain, Tony Rice and Chris Bell. For a transitional period, Dyson and Pain will also be non-executive directors of Punch. Punch’s board will also comprise Roger Whiteside as chief executive; Steve Dando as finance director; Stephen Billingham as non-executive chairman; and Ian Fraser as non-executive director. The company said that after the demerger it would continue with the reposition of Spirit, which currently comprises 803 managed pubs and 549 leased pubs, through further investments in new brands and refurbishments across the managed estate. The company said it expects to convert up to 100 pubs from the leased estate into managed pubs over the next few years. It said that Spirit’s leased pub business will be operated as a separate division with a view to improving its profitability. For nine months after the demerger Punch will continue to provide certain management and administration services to Spirit’s leased pub business and certain limited communication services to Spirit’s managed pub business. It said that over time those leased pubs which the Spirit board believes are not suitable for conversion to managed pubs will be sold, with the timing of such disposals “balanced against other factors, such as the value which can be obtained by Spirit”. Dyson said: “The current intention is that Spirit will, over time, become a solely managed pub business.” The company also said that Spirit intends to adopt a “progressive dividend policy” with a payout ratio of 33% of net income over the medium term. It said that Spirit directors intend that Spirit will pay an interim dividend and a final dividend in respect of each financial year in approximate proportions of one-third and two thirds, respectively, of the total annual dividend. Punch comprises 5,080 pubs, of which 2,954 pubs are in the core division and 2,126 are in the non-core division. The company said it was it6s long-term aim to make Punch one of the “UK’s highest quality and most trusted leased pub operators” As part of this aim, it has reorganised its estate into two separate divisions, a core division, which consists of 2,954 pubs and a non-core division of 2,126 pubs. It said that the strategy for the core division was to drive sustainable long-term growth through the continuation of the Pathway to Partnership programme, while the strategy for the non-core division was to maximise short-term returns with a focus on cash flow and costs. The company said it did not recommend a final dividend for the 2008, 2009 or 2010 financial years and, other than the demerger dividend, does not anticipate the group paying or declaring any dividends for the foreseeable future for the leased company. Dyson said: “Punch is positioned to drive long term value by downsizing to an estate of around 3,000 high quality pubs, with the aim of being one of the UK’s highest quality and most trusted leased operators. The intention is to sell these pubs over a five-year period at a rate of around 500 per annum, which is consistent with the group’s rate of disposal over the previous three years.”