SHARES in Spirit Pub Company have surged by nearly 10 per cent after Belhaven owner Greene King returned with a revised proposal for the Burton-based pub giant.
Greene King signalled its determination to land Spirit, whose 1,200 estate includes scores of pubs in Scotland, by tabling a cash and shares proposal that would value its target at £723 million.
If the new approach turns into a concrete bid, it could swell the already vast Greene King estate beyond the 3,000 mark across the UK.
The new proposal comes after Spirit, whose pubs in Scotland trade under brands such as John Barras and Chef & Brewer, threw out an all-share approach valuing the business at 100p per Spirit share from Greene King last month.
Spirit said the £661 million proposal had undervalued the business and its prospects.
But Greene King's fresh approach has brought an encouraging response from Spirit, whose board has recommended it to shareholders, subject to certain terms being satisfied. Spirit told investors that talks were now taking place between the two companies.
The revised proposal comprises 0.1322 Greene King shares per Spirit share and a cash payment of 8p (including any 2014 dividend). This represents an indicative value of about 109.5p per Spirit share, based on the closing price of Greene King shares last Friday (October 17).
Spirit shareholders would hold about 29 per cent of the new Greene King under the terms of the proposal.
Investors responded by sending Spirit shares up by 8.75p, or 9.62 per cent, closing at 99.75p, while Greene King shares closed up 7p at 775p.
In a statement to the stock exchange, Spirit said an agreement has been reached with the Takeover Panel under which Greene King has until 5pm on October 30 to either commit to making an offer or walk away from the proposal. The panel may consent to the deadline being extended.
Greene King, led by chief executive Rooney Anand since 2005, has made a number of acquisitions and disposals this year as it continues to shift the balance of its estate towards more profitable outlets it manages, rather than tenanted operations.
According to its latest annual report, Greene King has 500 destination pubs and restaurants under brands such as Hungry Horse and Eating Inn, 480 local pubs, 978 tenanted pubs, 253 leased pubs and 38 franchise outlets. Around 200 of Greene King's outlets are in Scotland, with the bulk trading as Belhaven managed or leased outlets.
In its most recent trading update, the company cited tough comparisons with last summer and a disappointing World Cup as like-for-like sales edged up 0.4 per cent in the 18 weeks to September 7.
Spirit was established by Punch Taverns in 1999 following the acquisitions of the leased and managed estates of Inns Business Group and the UK pub estate of Allied Domecq.
The company demerged from Punch in 2002 but was reacquired by the pub giant in 2006. It demerged from Punch again in 2011 and was floated on the stock market, shortly before when it had 803 managed and 549 leased outlets. Spirit's managed estate comprises more than 750 sites, with brands such as Fayre & Square and Flaming Grill.
Analysts at N+1 Singer said: "With the prospect of another party entering the fray pretty limited, we expect Greene King to prevail with its offer at circa 110p."
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