Merger of Punch and M&B set for go-ahead

The proposed £11b merger of Punch Taverns and Mitchells & Butlers (M&B) will be referred to the Competition Commission but has "a good chance" of going through, experts have predicted.

Punch approached M&B this week with a merger proposal that would create a pub giant with turnover of £3.7b. The deal, which followed M&B's £274m loss on hedging arrangements, would see shareholders receive equal control of the new entity, with Punch chief executive Giles Thorley retaining his role and M&B chief executive Tim Clarke becoming non-executive chairman.

A combined Punch and M&B group would own about 10,500 pubs, including 2,800 managed pubs - about one in six (18%) of the 58,000 pubs currently in operation in the UK. Punch said there was a "substantial strategic rationale" in combining the two businesses.

Under Competition Commission rules, any merger of two companies with turnover in excess of £70m can be referred. It can also look at mergers that result in a market share of more than 25%.

A spokesman for the commission told Caterer any merger might well involve a disposal.

"The pub market is fairly local," he said. "If this proposal gives them a strong position in some areas it might lead to some pubs being sold off."

Douglas Jack, analyst at Panmure Gordon, said that, while it was too early to tell if the deal would go through, it had "a good chance" - although he added that it could lead to 200-300 pubs being put up for sale.

Geof Collyer, analyst at Deutsche Bank, added: "In the event of M&B not being able to get anyone else to the table, we believe the board will struggle to say no to Punch."

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By Christopher Walton

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