From a Pinch and a Punch on the first of the month to Whitbread’s Pub Quiz this week, we have followed with amusement the arcane convolutions of the knockabout bidding battle for Allied Domecq’s pub estate. Not since the roaring Eighties has City advertising been so engaging.
If only the arguments supporting it were equally so. Weeks into the takeover battle we remain to be persuaded – and so presumably do shareholders. The objectives of the Punch Taverns bid may be open to question but, of the two parties, are the easier to grasp. Essentially, Punch is not that interested in brands (most of the branded pubs will be passed to Bass if it wins), but is prepared to pay a knockout price, mostly in cash, to gain Allied’s 1,500 Vanguard Pubs, which would double in size its leased estate, and considerably improve its bargaining power.
To Whitbread, Punch is the barbarian at the gate threatening to despoil the civilised values of the Beerage. Whitbread is a firm believer in branding, at which it’s quite good, and would have us know that the kernel of its offer is not a naked appeal to shareholder greed but carefully considered brand synergy, which will benefit the merger company in the longer term. Seemingly to prove the point, its bid price is lower than – though temptingly close to – Punch’s and comprises a richer mix of shares.
Certainly Whitbread has done its homework. It has closed ranks with the Allied management and got its bid recommended. It has even drawn up a fairly detailed retail structure for the two companies, should they combine.
But how persuasive are its arguments about brand synergy in the pub and restaurant sector? According to Allied pubs marketing director Andy Walder (who will not necessarily benefit personally from either takeover scenario), Allied and Whitbread are geographically complementary. What’s more, there is little obvious conflict in terms of brand positioning. But a goodish fit is not tantamount to leveraging brand synergy. And it is this which worries analysts, who point to Whitbread’s lacklustre performance recently, outside Pizza Hut and David Lloyd Leisure (not, of course, pubs). There are even those who cynically question whether pubs have any significant brand equity in the first place. Rather unkindly, they suggest that the pub battle really revolves around economies of scale and controlling distribution. Which is why Whitbread and Bass, who both have substantial brewing interests to consider, are both so desperate to win the Allied prize.
As to who has the more persuasive argument, we’ll find out on July 23, when shareholders cast their final vote.
see “News Analysis”