Hugh Osmond claims to have the vision to revive 6C’s ailing chains, such as All Bar One, but consumers are returning to traditional values, writes George Pitcher
It is never a good idea for a columnist to examine a corporate issue during a week when so much is likely to happen – or just as easily may not happen. So it might seem more sensible to wait until some of the dust has settled on the pubs-and-hotels conglomerate Six Continents (6C), which faces a &£5.6bn hostile takeover bid from fresh-faced Hugh Osmond’s Capital Management & Investment group.
But there are two good reasons for commenting on it this week. The first is the pragmatic realisation that the dust will only properly settle when the fate of 6C is resolved, and everyone will be bored to tears by it by then. The second is that the corporate issues affecting 6C are now so complex and unpredictable that, as ever, they dominate all analysis of the bid at the expense of some immutable trading truths that will remain, whatever the outcome of the machinations this week or in coming weeks.
By the time you read this, any number of developments may have occurred. CVC Capital Partners may have organised a competitive, agreed cash bid of some &£6bn for 6C. Shareholders in 6C may have voted on a demerger to focus Osmond’s mind on improving his offer, or they may have postponed the demerger vote.
More broadly, Osmond’s banks may have made their position clear over the &£3.2bn line of credit that he needs to fulfil his undertaking to return &£700m in cash to 6C’s shareholders. The banks are said to be windy about lending such money in the event of war.
They always are. I remember my father telling me how banks commonly foreclosed on loans to businesses in 1939, when they had just come through the depression of the Thirties.
That was a very different world economy. But it’s good to know that, in a changing world, the banks remain a constant. America and Britain may be poised to go to war with Iraq to save the capitalist western world from terrorism, but the banks are bottling it as ever.
All these uncertainties will work themselves out in the coming weeks. If I were a betting man – as only betting men ever say – I would back Osmond against the old guard of 6C, which evolved out of the old Bass combine. The chairman of 6C, Sir Ian Prosser, built Bass as an opportunist, rather than as a strategist. Osmond is an opportunist too – but he’s the opportunist’s opportunist. He’s the sharpest tool in the shed of opportunists. He comes with opportunistic depth as well as width. What’s more, he’s got a successful stint as head of Punch Taverns behind him.
He is focused on returning cash to shareholders at a time when they need it badly. He will sell off 6C’s property portfolio to the highest bidders. He will also raise cash for shareholders by borrowing against cashflow from the North American Holiday Inn franchise and securitising cashflows from pub chains.
Osmond knows that, in this climate, cash is king as never before. That, of course, will assist any competitive cash bid from CVC or another. But Osmond is focused on delivering cash value to shareholders and my guess is that he won’t go away if he’s trumped or if 6C’s shareholders play hardball for more cash up front.
This may all be in the realms of surmise for the time being, but what is more certain – and the events of this week won’t alter it – is the immutable truth that 6C’s pub interests, which include All Bar One and O’Neills, have to be run better. In fairness, Osmond himself is on record as having said this.
These pub interests may be chronically undervalued, which is what attracted Osmond to make a bid in the first place, but there will be a reason for that. They are not delivering the revenues they should be.
Or rather, Osmond would have us believe they are not delivering the revenues they could be. This is an important distinction. Osmond claims that he knows how the value can be wrung out of All Bar One, which has lost its way, by reorganising its offer to its hungry and thirsty market.
With his pizza chain background, I have no reason to doubt that Osmond is a brilliant adjudicator of mass-market taste in catering. But, in these straitened economic times, I fear for further trendy revamps.
The themed bars in market towns and provincial cities already all look the same – wooden tables and floors, wild west lighting and “specials” on the blackboard. This is not just an old buffer point: this market has reached maturity very quickly.
What’s more, the evidence is that the market is becoming more staid and prosaic. I’m interested to read that 6C’s Toby Carvery chain is doing brisk business, as is Scottish & Newcastle’s Country Carvery operation. This is the unfashionable – to metropolitans – “roast dinner with all the trimmings” market. Similarly, JD Weatherspoon, the no-frills, no-music, low-price pub chain, has seen its margins suffer recently, but is nevertheless a sound business which demonstrates that there is commercial life in an old-style pub format.
It may be that Osmond recognises this. But it’s difficult, for the time being, to see what could be done to the likes of All Bar One to take account of it.
George Pitcher is a partner at communications management consultancy Luther Pendragon