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Morning Briefing for pub, restaurant and food wervice operators

Thu 15th Dec 2016 - Punch agrees to £402.7m takeover offer
Punch agrees to £402.7m takeover offer: 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 1,900 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.”

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