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Fri 6th Dec 2019 - CMA to clear £3bn Stonegate and Ei Group deal if local concerns overcome
CMA to clear £3bn Stonegate and Ei Group deal if local concerns overcome: Stonegate Pub Company’s proposed £3bn acquisition of Ei Group does not raise UK-wide competition concerns but “could damage competition in 51 local areas”, the Competition and Markets Authority (CMA) has said. The CMA has been investigating the deal between the two pub groups. Together, the two groups operate close to 5,000 pubs across the UK, including chains such as Slug and Lettuce and Yates, as well as a large number of unbranded pubs. The CMA stated: “After completing its initial Phase 1 investigation, the CMA has found the purchase does not raise competition concerns on a UK-wide basis. While the merged business will be the largest pub group in the UK, it will continue to face competition at the national level from several other large pub groups. The CMA has also investigated the potential impact of the merger in more than 500 local areas across the UK, in which both businesses currently have premises. While sufficient competition will remain after the merger in most cases, the CMA found the deal could reduce choice for pub-goers in 51 local areas where the combined business would face only limited competition. The CMA is therefore concerned that, if the businesses were to merge, pub goers in those areas could be faced with price increases or lower quality products and services. The companies now have until 13 December to suggest ways of overcoming these concerns. If proposals are not offered, or do not sufficiently address the issues raised, then the merger will be referred for an in-depth Phase 2 investigation.” The CMA announcement comes after Propel revealed this morning (Friday, 6 December) Stonegate is to bring circa 40 sites to market to address CMA concerns. Stonegate had already agreed to dispose of up to 100 sites, which it believed would be enough to secure clearance. Propel understands the circa 40 sites would roughly consist of 30 Ei Group pubs and ten operated by Stonegate. The pubs are believed to be spread across England and Wales, with a good proportion in London and the south east. Agent CBRE is believed to have been lined up to market the sites, which are expected to sell in packages. The proposed £3bn deal would see Stonegate buy circa 4,000-strong Ei Group for 285p a share, a 38.5% premium to the closing price of 205.8p per share the day before the deal was announced in July. The acquisition values Ei Group’s entire issued and to be issued ordinary share capital at about £1.27bn. The terms of the acquisition imply an enterprise value of £2.97bn and a multiple of about 11.4 times Ei Group’s underlying Ebitda of £261m for the financial year ended 30 September 2018, adjusted for the disposal of 370 commercial properties. The deal is expected to complete in the first quarter of 2020. Stonegate chief executive Simon Longbottom would lead the new-look business, with counterpart Simon Townsend and the entire Ei Group board stepping down.


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