A formal recommended proposal for a management buy-out at Yates Group is expected to be unveiled at the company's preliminary results announcement next Wednesday, June 9.
Independent directors at Yates Group have been studying a proposal for an MBO backed by the American private investment firm Global Innovation Partners, the company revealed this morning, after a 6% rise in the company's share price in two days to 106p prompted an official statement.
It is believed GI Partners approached the company in early February, and the independent directors, Mike Hennessy, Christopher Fisher and James Kerr-Muir, gave permission in early May for the management team to evaluate the approach.
The deal is now believed to be effectively complete, with one source saying: "All it needs is a printed offer letter and it's done." No details are available on the likely size of any offer, although analysts are suggesting it will be at least 130p a share, valuing the group at £87m, excluding its debt of £55m. Insiders indicated that even at the company's current share price, which leapt another 14p to 120p in less than two hours a couple of hours after the announcement, there was "still headroom" between Yates's current market capitalisation of just over £80m and the likely MBO bid. Yates runs around 150 outlets, split between 130 Wine Lodges and 20 Ha! Ha! Bars, and its last balance sheet showed net assets after debt at just over £117m.
Analysts are suggesting GI could face rival bidders: either venture capitalists or other pub companies. Laurel, which is in the middle of selling its suburban managed pubs, responded to rumours that I might make its own bid for Yates by saying it would "watch the situation with interest."
Yates Group has been struggling since problems hit the High Street in 2001. Two years ago Hennessy, then chief executive, stepped up to chairman, being replaced by Mark Jones, the former managing director of Pizza Hut and Hogshead. Since then under Jones and finance director Stevan Fowler, who joined the company in September 2001, the company has struggled to get like-for-like sales at its main Yates's Wine Lodge going in the right direction. In its last trading statement Yates said for the 50 weeks 14 March 2004, group like for like sales were down 2.8%. Yates brand like for like sales for the period were down 3.9%, though the invested "21st Century Yates" bars were up 1.7% and like-for-like sales at the Ha! Ha! cafe bar chain were up 3.7%.
GI Partners is a joint venture between CalPERS, the world's largest public pension fund, and the property services firm CB Richard Ellis, which focuses in Europe on investing in management buy-outs, corporate spin-offs, and acquisitions of mid-market asset-backed companies. In March it invested £10.8m in the management buyout of NHP Healthcare Partnerships, the fund's first UK transaction. It is being advised by the City bank Cazenove. GI is run by Richard Magnuson, who was deputy to Guy Hands at Nomura Principal Finance when it was Britain's biggest pub owner. Yates Group shares ended the day up 20.5% at 123.5p."
