City Pub Group PLC on Thursday agreed to a cash and shares takeover offer from Young & Co’s Brewery PLC worth around £162 million, while Young’s also said half-year profit rose.
City Pubs is a London-based owner and operator of 52 pubs, while Young’s is a London-based operator with 226 managed pubs and one tenanted pub.
Young’s offer implicitly valued each City Pubs share at 145 pence each, a 46% premium to the closing price ‘at the last practicable date’. City Pubs shares surged 34% to 132.43p each in London on Thursday morning, while Young’s shares were down 0.5% to 1,105.00p each.
City Pubs shareholders would receive 108.75p in cash plus 0.032658 new Young’s shares for every City Pub share, based upon the ‘last practicable’ closing price of 1,110p per Young’s share.
City Pubs shareholders would receive around 3.6 million new Young’s shares in total.
The takeover offer currently has 33% acceptances from City Pubs shareholders, while City Pubs directors consider the terms of the transaction to be ‘fair and reasonable’ and for shareholders to vote in favour of the scheme at the court and general meetings.
‘City Pubs is an excellent business we have followed for some time, and one which aligns closely with Young’s in terms of both strategy and culture. Like us, City Pubs operates premium, individual and well-invested pubs and rooms, with a focus on the highest standards of customer service. Both businesses have performed well in a tough trading environment recently, testament to the strength of our business models, people and approach to customers,’ said Young’s Chief Executive Officer Simon Dodd.
‘We believe that City Pubs is an excellent fit with Young’s and the combination of the two businesses represents a compelling opportunity for all stakeholders. It will allow us to expand our estate through the addition of a complementary, high-quality pub and bedroom portfolio, with the potential for the benefit of significant operational synergies to be realised by both sets of shareholders, through the partial share offer.’
City Pubs Executive Chair Clive Watson commented: ‘Like all hospitality businesses, the pandemic derailed City Pubs’ progress, but it has been able to produce a strong performance since with a more focussed, reshaped business with the lowest debt in its history and a solid strategy in place. The City Pubs board has therefore been able to evaluate today’s recommendation from a position of strength.
‘Following careful consideration, we believe the transaction is in the best interests of City Pubs shareholders with the ability to realise 75% of the equity in cash at a material premium to the current share price together with a stake in the future upside. The board believes the transaction significantly accelerates the value that could be realised in the short term by City Pubs if it were to remain independent.’
City Pubs investor Oryx International Growth Fund Ltd said it was ‘pleased’ to note the proposed acquisition.
Young’s also reported that pretax profit rose 2.5% to £24.5 million in the six months that ended October 2 from £23.9 million a year earlier.
Revenue was up 5.4% to £196.5 million from £186.5 million, while it upped its interim dividend by 6.0% to 10.88p from 10.26p.
Net debt at October 2 increased 9.5% to £184.0 million from £168.1 million a year earlier.
Post-period, Young’s said total sales in the previous six weeks were up 5.8% from a year earlier or 3.3% on a like-for-like basis. It said the Rugby World Cup boosted trading, particularly in Guinness sales, which reached ‘new highs’.
Young’s said Christmas bookings are ‘already looking strong, supported by the significant investments we have made in our existing estate and the addition of fantastic premium freehold pubs’.
Young’s CEO Dodd added: ‘Despite the good start to the second half of our financial year, we continue to monitor trading conditions closely. The macroeconomic environment and the impact this could have on consumer sentiment remains unpredictable.’
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