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Ei Group PLC

Ei Group raises glass to £3bn takeover deal from Slug & Lettuce owner

Shareholders in the company formerly known as Enterprise Inns have been offered 285p per share in cash

enterprise inns
Ei is lined up to be the next in a series of acquisitions for private-equity backed Stonegate

Britain’s biggest pub company, Ei Group PLC (LON:EIG) has accepted a £3bn takeover deal from the owner of the Slug & Lettuce and Be At One chains.

The all-cash deal will see shareholders of FTSE 250-listed Ei, formerly known as Enterprise Inns, receive 285p per share if they also accept the deal, representing £1.3bn of the total.

Ei, which owns and manages more than 4,000 pubs after it sold off almost 350 properties to a hedge fund in March, also has £1.7bn of debt.

Ei shares leapt 39% to 285.4p on Thursday morning from the closing price of 205.8p the previous day, with the offer also 27% above the highest price seen in the past decade.

Stonegate growing fast

Owned by private equity firm TDR Capital, managed pub operator Stonegate has grown rapidly through a series of acquisitions since it was formed in 2010 with the acquisition of 333 pubs from Mitchells & Butlers PLC (LON:MAB).

Its estate has expanded to almost 770 pubs and bars, including the Walkabout and Yates chains.

Ei chairman Robert Walker said the management team have "done an outstanding job" in returning value to shareholders over the past four years, with the shares up 80%, and he said the acquisition "is only possible because of the work that they have done and what has been achieved".

Structural shift for pubcos

After years drowning in debt as Enterprise Inns before rebuilding its business and getting its finances in order, it’s now “time for EI Group to go Walkabout,” said Russ Mould, investment director at AJ Bell, saying the deal caps a “very impressive turnaround” story.

“The timing was perfect as its estate was cleaned up just in time for EI to be in prime position to benefit from a structural shift in the market from food to drinks-led demand. EI is all about the latter and so it is perhaps no surprise that one of its closest rivals thought it was time to join forces.

He noted that the shares were trading at 27p in January 2012 and Stonegate's offer implies a 955% return for any investor who held the stock during its darkest times.

Positive read-through for rivals

Broker Peel Hunt observed that the £3bn enterprise value of the offer was equivalent to a 10.9 multiple of underlying earnings (EBITDA) and that the group's EBITDA growth and debt reduction strategy “would have taken until 2022” to reach the same 285p per share of equity value as the Stonegate offer.

“In our view, the valuation implications has a very positive valuation read-through to the other pub operators,” analysts said.

Based on forecast EBITDA for 2019, valuations in the pub sector go from the low of 4.5 times for Revolution Bars Group PLC (LON:RBG), via Mitchells & Butlers on 7.3 times, Greene King PLC (LON:GNK) at 8.2, Marston's PLC (LON:MARS) on 9.5, up to JD Wetherspoon PLC (LON:JDW) at 10.6 times and Fuller Smith & Turner PLC (LON:FSTA) at 11.8.

Quick facts: Ei Group PLC

Price: £2.81

Market: LSE
Market Cap: £1.23 billion
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