Leading sector analyst Simon French of Panmure Gordon has said that a rumoured approach for Mitchells & Butlers (M&B) from leading shareholders Joe Lewis and Elpida in combination with a private equity player is plausible.
A report this morning suggested that Lewis, JP McManus and John Magnier, which hold a near 20% stake in M&B through investment vehicle Elpida, were set to join forces with Kohlberg Kravis Roberts (KKR) to launch a £1.74bn or 425p a share bid for the managed pub operator.
French said: “Whilst we are naturally sceptical of market report rumours we think this speculated approach is plausible, given the discount to fair value the stock trades at, and the possible involvement of KKR. (In February 2008 it was reported to have hired bankers at Credit Suisse to advise on a possible approach). However we think the key impediment to a successful approach would be the group’s pension deficit. If that could be resolved then a bid could well be a possibility. We retain our Hold recommendation and 340p price target.
The analyst said that a 425p a share bid for M&B would imply £1.7bn for the equity and a £3.6bn enterprise value before adjusting for the group’s operating leases of c£40m per annum.
He said: “This would imply a FY 2011E P/E of 14.5x and an adj EV/EBITDAR of 8.7x, which is not expensive, in our view, in the context of previous speculated approaches for M&B
“We maintain our view that the current shareholder structure and management vacuum impedes the stock from trading at fair value and this would be one way of unlocking value. The group could look to unlock some of the group’s property value via sale and leasebacks, particularly of its central London estate. Alternatively it could look to further consolidate the managed pub market in private hands and return to the stock market with a cleaner share register in 2-3 years time.”
