Shares in Punch Taverns PLC (LON:PUB) continued to froth higher today following yesterday’s bidding war surprise which saw Dutch brewing giant Heineken pitch up against an offer from one of the pubs operator’s founders.
Punch revealed yesterday that a private equity firm linked to Heineken has made an offer of 174p per share for the company, while Emerald Investment Partners, the family office of Alan McIntosh, a former finance director of Punch, is bidding 185p a share.
After Punch shares gained more than 40% yesterday, this morning they rose another 3%, or 5.75p to 182.75p, with markets seemingly pricing in either a McIntosh victory or a second, improved offer from Heineken.
READ: Heineken serves up Punch offer ...
In a note to clients published today, analysts at Credit Suisse think that, “as the dust settles following the ABI/SAB merger", Heineken's first consolidation move to expand its UK pub estate appears rather surprising.
However, they pointed out that in the context of Heineken's UK business – around 6% of the Dutch group’s earnings ( EBIT) – “the strategic and financial rationale is sound.”
The analysts added that at the group level it would mean the UK business become Heineken’s third largest market - after Mexico and Vietnam – pushing its share of EBIT up to around 9% and diluting overall group growth.
Competition concerns? ...
Punch Taverns has around 3,330 leased and tenanted pubs, and Heineken intends to acquire about 1,900 pubs from private equity firm Patron Advisers, if the bid is successful, complementing Heineken's existing largely freehold, UK estate of around 1,100 pubs.
Given the size of the merged estate, any tie-up of Punch with Heineken would likely come under scrutiny from competition regulators.
Under Takeover Panel rules, both parties are required to announce a firm intention to make an offer by 5pm on January 11.
Credit Suisse concluded that factoring in “conservative synergy estimates”, it estimates that a deal could be around 2-3% EPS accretive for Heineken.
The analysts also added: “Heineken could re-finance some of Punch's expensive securitised debt and therefore be better able to invest in the estate.”
Last month Punch reported its first annual profit for three years, having reached the conclusion of a disposal programme designed to reduce its hefty debt pile.
The turnaround in the company’s performance under new chief executive Duncan Garrod comes after years of restructuring, which included the demerger of managed pubs business Spirit which was later snapped up by Greene King PLC (LON:GNK)