The private equity-owned company behind the Slug & Lettuce, Yates and Walkabout chains, is set to increase the size of its estate by more than five times after agreeing to buy the UK’s largest pub owner, Ei Group.
Stonegate Pub Company has offered all-cash terms that value Ei’s shares at £1.27bn, a 38% premium over the pre-bid share price on Wednesday. Including debt, the deal is worth £2.97bn with Ei directors recommending shareholders accept the offer.
The takeover will add over 4,000 new pubs to Stonegate’s existing estate of 765 sites.
Simon Longbottom, Chief Executive of TDR Capital-owned Stonegate, will stay on to head up the enlarged business, whilst Simon Townsend, boss of Ei, will step down once the deal is completed.
Ian Payne, the Chairman of Stonegate, said: “It is an exciting prospect to bring EIG and Stonegate together to create a diversified pubs group with significant industry expertise.
“At Stonegate, we have an established track record of running successful pubs throughout the UK – with over £350m having been spent on capital expenditure at Stonegate since it began trading in November 2010. We plan to leverage our existing managed house infrastructure, portfolio of formats and access to capital and invest in the combined estate for the benefit of all stakeholders.”
Recommending the deal to shareholders, Ei Group Chairman Robert Walker stated that the commercial benefits of combining the companies was “compelling”, adding: “Stonegate is committed to continuing to invest in the business for the future benefit of the combined business, tenants and employees.”
Ei, previously known as Enterprise Inns, has been moving more of its pubs to a managed rather than tenanted model following reforms of the ‘beer tie’ system. Stonegate operates only managed pubs and has grown through a series of acquisitions in recent years.
Analysts at Peel Hunt noted: “The combined estate should provide a substantial pool of pubs to either convert [from leased to managed] or sell. Thus, this could trigger a lot of follow-on corporate activity in the sector, particularly in tenanted and leased pubs in the short term.”
The companies said they hoped for the deal would be cleared by the Competitions and Markets Authority (CMA) by the end of January 2020. However, should the regulator require the disposal of more than 100 pubs to clear the takeover, they said terms of the deal might be altered.
NAM Implications:
- In other words, suppliers have until 2020 to harmonise any prices & terms anomalies…
- …and upskill Stonegate NAMs to a 5x customer.
- Meanwhile, anticipate further market changes via sell-offs of leased pubs…
