Punch buys Spirit

Punch Taverns has fought off fierce competition to acquire Spirit Group to become the largest pub operator in the UK. Spirit, which is owned by Texas Pacific, Blackstone, CVC and Merrill Lynch Private Equity, has reached an agreement with Punch Taverns, which will see the business valued at £2.7bn. Punch is to finance the deal with £1.25bn of debt, arranged by Morgan Stanley, Citigroup and Royal Bank of Scotland, and the assumption of £1.25bn of debt from Spirit, along with £275m of convertible bonds and up to 75 million new shares. Punch plans convert 750 of Spirit’s managed pubs to tenanted within the next two years and auction off 82 very soon.

Punch was up against a number of big names in the race for Spirit. According to reports, the contenders consisted of US private equity firm Clearbrook Capital, Robert Tchenguiz, Macquarie Bank and the Barclay brothers, the owners of The Daily Telegraph and London’s Ritz hotel.

Spirit and Punch already have a history together. In 1999 the Texas Pacific consortium backed the purchase of the Allied Domecq and Bass pub estates by Hugh Osmond. The new group was named Punch Pub Company. In March 2002 Spirit, then a Punch holding company operating the 1,000 Allied pubs, was demerged while Punch listed on the London Stock Exchange two months later as Punch Taverns.

Spirit manages over 1,800 pubs in the UK and employs approximately 38,000 staff. The company recently announced like-for-like sales growth of 3.9% for the 12 weeks to August 20, 2005 with EBITDA growth of 6.3%. Food sales grew by 7.7% in the period and drink sales rose by 2.8%.