Analysts give M&B pub sale the thumbs up

The move by Mitchells & Butlers (M&B) to sell 333 drink-led pubs and late night venues to private equity firm TDR Capital has received the thumbs up from City analysts.

The O'Neills and Harvester owner this morning announced the sale of the "non-core" pubs for £373m to a newly-formed pub and leisure group created by TDR, called Stonegate Pub Company.

The disposal forms part of a strategic review, announced by new chairman John Lovering in March, which prioritised the development of its food-led venues such as Harvester and Toby Carvery over drink-led and late night outlets.

Following the disposal, due to be completed in November subject to shareholder approval, M&B will have 1,580 restaurants and food-led pubs "with higher growth potential".

Mark Brumby, leisure analyst at Langton Capital, said M&B shareholders cannot realistically have expected much more from the deal.

"This is the largest pub deal for many years and the first involving a private equity firm and cash for some time," he said. "The disposal will accelerate both its roll-out of retail-park based food-led units, any acquisitions that it may have in its site and the reinstatement of the group's dividend."

Paul Hickman, leisure analyst at KBC Peel Hunt, added: "This is a major step, coming faster than most expected, in executing the change strategy articulated by the new chairman, John Lovering. It should facilitate the conversion of existing outlets to the six core brands as well as acquisitions of suitable assets at higher returns."

M&B had already announced the sale of 52 budget hotels for £75m, as well as the disposal of its Hollywood Bowl tenpin bowling business for £39m.

The proceeds will initially reduce M&B's borrowings but up to £500m could be invested in "growth opportunities offered in the informal eating out market", the company said.

TDR Capital was founded by Manjit Dale and Stephen Robertson, who backed Punch Taverns in the late 1990s while at DB Capital Partners.TDR was a major investor in Gondola Holdings, a merger of  PizzaExpress and Ask Central, which is now privately owned by Cinven.

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By Daniel Thomas

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