In a sign of encroaching consolidation in the UK hospitality sector, Young & Co Brewery PLC has reached an agreement to acquire City Pub Group PLC (AIM:CPC)’s chain of freehold pubs and bedrooms in a transaction valued at approximately £162 million.
In a regulatory notice published on Thursday, Young's said it intends to strip down City Pubs' existing management, corporate and support functions, though “does not intend there to be any material reduction in headcount” to the ground staff.
Young's also said it expects that each of the executive directors of the City Pubs board will leave their employment with City Pubs.
The news follows Fulham Shore’s acquisition by Toridoll for £100 million in cash last April and Wagamama-owner TRG accepting a 65p per share offer from Apollo Global Management (NYSE:APO) last month.
Each City Pubs shareholder is set to receive 108.75p in cash and 0.032658 new Young's A Shares for each share they hold.
The deal values City Pubs shares at 145 pence each, representing a 46% premium over the last closing price and a 65% premium over the three-month average.
Young's, a prominent operator across London and Southeast England, will expand its trading estate by another 20% following the addition of 50 more wet-led pubs.
Young's has secured a £130 million loan agreement with Barclays Bank plc, HSBC UK Bank Plc, and National Westminster Bank Plc to finance the takeover.
City Pubs' executive chairman Clive Watson stated that “like all hospitality businesses, the pandemic derailed City Pubs' progress, but it has been able to produce a strong performance since with a more focussed, reshaped business with the lowest debt in its history and a solid strategy in place”.
He added: “Mindful of the uncertain economic climate, high interest rates and inflation in particular, and our plans for long-term growth as an independent company, initial approaches were rejected. However, following careful consideration, we believe the transaction is in the best interests of City Pubs shareholders."
“We believe that City Pubs is an excellent fit with Young's and the combination of the two businesses represents a compelling opportunity for all stakeholders,” said Young’s chief executive Simon Dodd.
“It will allow us to expand our estate through the addition of a complementary, high-quality pub and bedroom portfolio, with the potential for the benefit of significant operational synergies to be realised by both sets of shareholders, through the partial share offer."
City Pubs was established in 2012 as a start-up under the Enterprise Investment Scheme (EIS).