Whitbread and Mitchells & Butlers in asset deal

Mitchells & Butlers and Whitbread will today announce a £200m asset swap of pubs and hotels in a move likely to be seen as a victory for Iranian property tycoon Robert Tchenguiz.

The long-awaited deal will see M&B hand over the majority of its Express by Holiday Inn hotels in exchange for up to 50 of Whitbread’s larger pub restaurants. Each group of assets is worth about £100m.

While the move will be welcomed by shareholders, many are likely to be disappointed by the scale of the deal. Analysts had hoped for an exchange involving at least the majority of Whitbread’s 400 Beefeater and Brewers Fayre pub restaurants with M&B handing over its portfolio of about 100 Express Inn and Innkeepers hotels, as well as up to £500m in cash.

An asset swap is widely seen as making commercial sense for both parties, especially given M&B’s record with the 239 pubs it acquired from Whitbread in 2006.

“M&B has been successful at taking Whitbread pubs and doing a better job at running them, while Whitbread is among the hotel sector’s top operators with Premier Inn,” said one shareholder.

M&B is well regarded as a pub operator but its management has come under fire after the company was hit by a pre-tax loss of £391m in January following failed attempts to set up a property joint-venture with Mr Tchenguiz.

One leisure sector analyst said: “This will not be enough to redeem M&B’s management, but it is a step in the right direction.”

Mr Tchenguiz, who owns nearly 29pc of M&B and 3pc of Whitbread, installed two of his lieutenants on the pub group’s board in May and is believed to have pushed for an asset swap to be agreed.

In a research note published in June, Citigroup analyst Leslie Zarka backed an asset swap: “M&B is

looking to sell its lodges and to consolidate the managed pub sector, Whitbread is looking to consolidate the UK budget hotel market. The repositioning of Whitbread’s pubs is not living up to management expectations, and Whitbread and M&B have Robert Tchenguiz as a common shareholder.”

 

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