Punch proposes merger with M&B

Just days after insisting "it's not us" Punch Taverns has approached Mitchells & Butlers (M&B) with a £11b merger proposal.

The deal 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 would own approximately 10,500 pubs, approximately one in six of the 58,000 pubs currently in operation in the UK.

Punch said there was a "substantial strategic rationale" in combining the two businesses including "operational synergies in the managed pub business" and a reduction in central costs.

It added that its proposals were attractive because if their value, speed and deliverability and is offering M&B's shareholders a £175m sweetener.

M&B has said that as part of its current strategic review it would be giving careful consideration to all proposals but added that there were no assurances that a transaction would be forthcoming.

In 2006 Punch spent £2.7b on managed pub operator Spirit Group. It has since sold on 400 pubs and converted approximately 700 to lease.

Mark Brumby, analyst at Blue Oar Securities, said if the deal were to go ahead it would create a pub company considerably bigger than those that existed before the Beer Orders of 1989, which were introduced to end brewers' monopoly of the sector.

"The resultant company, which would have some 10,500 pubs, around 2,800 of them managed, would have an enterprise value of around £11b and be the largest pub company in the country by a considerable margin."

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By Christopher Walton

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