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The City

Published:  18 January, 2007

While the big spirits producers are intent on consolidation, so are the on-trade retailers who sell their wares in the UK.

Rarely in the past few years has there been so much rumour and action in the mergers and acquisitions market for pubs.

Take Spirit Group, which is owned jointly by a number of private equity firms and Merrill Lynch, the investment bank. Late in June it received an unsolicited approach, worth up to 3 billion, from Punch Taverns, Britain's second-biggest pub chain, for its 2,000 pubs. Punch has been on an aggressive drive, having bought the Pubmaster group for 1.2 billion in 2003. That was followed last year by a successful 335 million grab at InnSpired, taking its estate to more than 7,700 houses. Punch wants to convert 1,200 of Spirit's managed pubs into tenancies and sell on the remaining 800. And it should know what it is doing, because Spirit was de-merged from Punch only a few years ago.

The Punch approach prompted Enterprise Inns, Britain's biggest pubs operator, to look at Spirit in concert with Cinven, the private equity group. The talks came to nothing and Enterprise walked away, but Cinven is said to be seeking another operating partner.

Punch's offer for Spirit, which may consider a stock market flotation of its own, is unresolved, but Punch has taken its estate above the 8,200-house mark by paying 219 million for the 409 community pubs owned by Avebury Holdings. The deal will be earnings-enhancing in the first year.

Meanwhile, Regent Inns, the owner of the Walkabout sports bars, has been pursuing Urbium, the owner of several metropolitan bars. Urbium has received several offers from private equity groups, including Charterhouse, which recently bought the Barracuda pub chain. Regent made four offers, the final one totalling 101 million, but Urbium spurned the approach and now Regent has walked away because it has decided that any higher offer would overvalue Urbium. Confusingly, however, Regent has reserved the right to re-enter the fray while continuing to look at other takeover opportunities. The fate of Urbium is likely to be decided in the next few weeks.

One target that Regent may be evaluating is Ultimate Leisure, the Newcastle-based bars operator, which has recently issued its second profits warning within four months. Effectively, the company is in play because one investment house has taken control of 12% of the shares. Nevertheless, the fierce competition as the result of excess capacity and further weakening demand' that has hurt Ultimate has been reflected in the share price of Luminar, Britain's biggest nightclub operator, which has being trying to sell off its entertainment division, which includes the Jumpin Jaks and Chicago Rock Caf brands. It has now ring-fenced the entertainment side in the hope that a buyer will come forward eventually.