Punch agrees to £402.7m takeover offer:
Thu 15th Dec 2016
Punch has agreed to a £402.7m takeover offer from private equity firm Patron Capital Advisers LLP and Dutch brewer Heineken. Patron and Emerald Investment Partners revealed rival offers for Punch on Wednesday (14 December), sending shares in the pub company surging by 40%. Punch is the second-largest pub chain in the UK by number of sites, with about 3,300.
Patron has agreed to pay 180p a share in cash and the offer has received the support of Punch’s top three shareholders, Glenview Capital, Avenue Capital and Warwick Capital Partners, which control 52.3% of Punch’s issued share capital, and of the Punch directors. In addition, including Punch’s total net leverage as at 20 August 2016 of £1,372.9m (including swap value of £169.7m), the offer implies an enterprise value of £1,775.6m and represents a multiple of approximately ten times Punch’s Ebitda for the 52 weeks ended 20 August 2016.
Under the terms of the offer, once completion has been achieved, Heineken will buy the Punch A securitisation and certain pubs, plus Punch intercompany loans for £305.0m.
The Punch A securitisation is one of the two tranches the company’s debt was split into in 2014 when it completed a significant restructuring of its financial obligations.
The deal would add 3,300 pubs to the 1,100 sites Heineken controls in the UK through its Star Pubs & Bars business.
Punch expanded rapidly in the 2000s but then took a hit from the introduction of the smoking ban in the UK, higher beer duties, and a general downturn in the British pub industry during the financial crisis of 2008.
The company frequently warned in the lead up to restructuring that it could default on its debt pile and eventually agreed a debt-for-equity swap deal in October 2014 with its lenders which gave its bondholders 85% of its equity.
Stephen Green, senior partner of Patron Capital, said: “Our offer creates an exciting opportunity for Punch as a more focused business.
Under private ownership, with strong financial backing, and a commitment to continued investment, pubs and publicans will have our full support to deal with changing market dynamics and provide their customers with the best possible offer.
These are high quality pubs with excellent future potential.” Stefan Orlowski, regional president Europe for Heineken, added: “This transaction is a significant step forward in our strategy to unlock value in the UK pub market.
The performance of our Star Pubs & Bars business clearly shows that well invested pubs, in the hands of skilled and ambitious independent operators, can outperform.
Leveraging our extensive experience will enable us to realise increased potential from the pubs we are acquiring and deliver positive returns to our shareholders.”
Heineken UK managing director David Forde said: “Today’s announcement is a huge vote of confidence in the Great British pub. Our proven track record of success demonstrates that well invested and well-run pubs in the leased and tenanted sector can thrive.
Today’s development is good news for pub-goers across the UK who will see the benefit of better pubs in their communities. We look forward to welcoming new licensees in to Star Pubs & Bars, and to working with them to grow their businesses.”
Punch chairman Stephen Billingham added: “The Punch board and management team have positioned Punch to drive long-term value for shareholders and our recent performance has demonstrated the successful execution of this strategy reflecting the hard work and quality of the whole Punch team.
While the board did not solicit this offer for the company, we believe this is a good outcome for shareholders as the offer provides cash certainty at a significant premium.”
PUNCH TAVERNS – CO AGREES TO LOWEST BID: (Langton Capital)
• Patron & Punch announce agree to ‘recommended final cash offer’ for company of 180p per share
• The initial approach (at least the first that was made public) was at 174p
• PUB bid has agreement of 52.3% of shareholders. It says this is irrevocable (but only in the absence of a bid >200p). Q important, that.
• Punch has the agreement of the directors, Glenview, Avenue Capital and Warwick Capital. But only if there is not a materially better offer
• Punch. Bid is not necessarily final and irrevocable agreements are not necessarily irrevocable. Over to you, Mr McIntosh
• Punch bid. Lots of surplus words. Including ‘irrevocable’, perhaps. Also, premia to recent equity share price levels arguably meaningless
• Punch offer c40% premium to 3dys ago but c20% discount to price at which refinancing backed by supportive shareholders in 2014
• Punch. Rival potential bidder Emerald was last seen willing to pay 185p. It would have to top 200p to stay in the game
• Punch. Various premia are mentioned in offer RNS but they mean little in the context of a company in Punch’s position
• Punch is (arguably) extremely valuable in the eyes of a brewer such as Heineken. Punch’s NAV is 285p
• Punch has argued its NAV is fair at 285p. It would take a buyer c20yrs or more to construct such an estate. But bird in hand etc.
• Punch. Bidco says it would have to use some disposal proceeds to fund the aggregate Offer Consideration
• Punch. Patron says re its break-up proposal ‘our offer creates an exciting opportunity for Punch as a more focused business.’ It continues ‘under private ownership, with strong financial backing, and a commitment to continued investment, pubs and publicans will have our full support to deal with changing market dynamics and provide their customers with the best possible offer. These are high quality pubs with excellent future potential.’
• Punch bid. Heineken says ‘this transaction is a significant step forward in our strategy to unlock value in the UK pub market.’ Not sure what solace that is to Punch’s shareholders. It adds ‘the performance of our Star Pubs & Bars business clearly shows that well invested pubs, in the hands of skilled and ambitious independent operators can outperform.’ Ditto.
• Punch. Chairman Stephen Billingham says ‘Punch Board and management team have positioned Punch to drive long term value for shareholders and our recent performance has demonstrated the successful execution of this strategy reflecting the hard work and quality of the whole Punch team. While the Board did not solicit this offer for the company, we believe this is a good outcome for shareholders as the offer provides cash certainty at a significant premium.’ Hum.
• Punch, external comment.
o PMA has industry figures expressing ‘serious concern’ over Heineken’s planned bid as it could disadvantage tenants
o British Pub Federation writes to Competition Commission asking it to scrutinise the takeover
o Greg Mulholland MP warns that the emergence of a giant integrated brewer could be ‘very worrying’. He is reported by the PMA as saying ‘it would not be in the interests of consumers or licensees to have Heineken buying Punch. To have a giant brewing pubco taking on one of the two giant pub-owning property companies would be a huge step backwards and could restrict choice for both licensee and customer alike and this must be referred to the Competition Commission. There is also the danger with Heineken wanting pubs to stock their own products that they would be looking to ‘churn’ existing Punch licensees to be able to do so, which would be completely unacceptable’.
o Heineken already owns 1,049 pubs through its Star Pubs & Bars division. Adding Punch A would take it through 3,000
o Telegraph says ‘shares in Punch surged 7.9pc to 191p yesterday, suggesting traders expect a counterbid to emerge.’
o Punch chairman Stephen Billingham reports Heineken discussions been ongoing for ‘more than a year’
o Billingham says ‘the Heineken-Patron offer has maturity which is available to the shareholders to accept, whereas the Emerald offer does not have that degree of maturity and there is uncertainty over the source of the funding.’ He adds ‘the fact that over 50pc of the register has already signed up is an indication that this deal offers good value to shareholders.’
o Telegraph points out deal will need 75% approval.