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Risk Warning
23/03/2011
Punch Taverns has unveiled a radical plan to sell off up to 2,650 pubs over the next five years and split the debt-laden group into two listed companies, one for managed and one for leased pubs.
The group's chief executive Ian Dyson said Punch, which has 6,550 pubs, could not deliver significant value for stakeholders under its current structure, with debts of more than £3.14bn. In his strategic review, Mr Dyson – the former finance director of Marks & Spencer who joined Punch in September – said the "status quo is not sustainable" and there were limited synergies between the two divisions.
Punch plans to demerge, with one-off costs of £30m, before the end of the summer. Spirit, the managed house company, including the Chef & Brewer and Flaming Grill brands, will operate up to 950 outlets. The leased operation, Punch, will have its estate nearly halved from 5,402 outlets to 3,000 "high quality pubs" by 2016.
The split was not entirely unexpected as the managed division, which has higher food sales, has outperformed the leased division for a number of years. Richard Curr, an analyst at Prime Markets, said: "This move in one fell swoop puts the troublesome part of the business into a 'damage limitation' environment, leaving the performing managed business – Spirit – to deliver the sort of growth the long-suffering Punch shareholders have been waiting for." But other stakeholders, notably a group representing many of the bondholders – who in total have £2.5bn invested in the company's leased division – were not impressed. The Association of British Insurers Special Committee of bondholders described the review as "disappointing".
Under the new structure, £900m of debt will be held in Spirit and £2.5bn will be in Punch, while they will share £250m of cash.
For the 12 weeks to 5 March, the managed operation grew sales by 8.6 per cent, while like-for-like income at the leased division fell by 6.1 per cent.
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