Mitchells & Butlers plans to raise £500m after drinking the bar dry

Mitchells & Butlers (M&B), the owner of Harvester restaurants and Nicholson’s pubs, plans to raise £350m from a group of tycoons by selling shares at a third of the current price, says Jasper Jolly in The Guardian. The tycoons will also offer the company a £150m loan facility, bringing the total value of the package up to £500m. 

Currency trader Joe Lewis, Irish billionaires John Magnier and JP McManus, and businessman Derrick Smith (collectively known as the “Sandy Lane set”) will merge their investment vehicles into one entity, called Odyzean, giving them majority control of the company. The refinancing will “strengthen their hand”, says Bryce Elder in the Financial Times. Existing shareholders can’t sell the rights to buy the discounted shares on to third parties, as would be the case with a normal rights issue, leaving the Sandy Lane set to pick up any unsold shares. And with 55% of the shares, that means they can “dislodge independent management”. This is effectively a “coup” against smaller shareholders.

Analysts are already calling it a “nil-premium takeover” likely to lead to the company “going private under a ‘low-ball offer’ in the future”, says Ben Marlow in the Daily Telegraph. Still, even though the deal is bad for small shareholders, it’s hard to see what the alternative is, especially given that Mitchells & Butlers is now paying the price for “guzzling down £1.6bn in debt during the good times”. With borrowings “maxed out” and costs still running at £40m a month, on top of “a £50m interest bill to pay every quarter”, the bar has “almost been drunk dry”.