The private equity-owned company behind the Slug & Lettuce chain of bars has agreed a £3bn deal to buy Britain’s largest pub owner, Ei.
Stonegate Pub Company has offered all-cash terms that value shares in Ei at £1.3bn, a 38% premium over the target’s pre-bid share price. Including debt, the deal is worth £3bn.
Shares in Ei, formerly known as Enterprise Inns, rose almost 40% to their highest level in more than a decade after the bid, matching Stonegate’s 285p terms. Ei directors recommended shareholders accept the offer.
The takeover would add Ei’s nationwide stable of more than 4,000 pubs to Stonegate’s existing 772 sites, which also include Yates and Walkabout, making the combined group Britain’s largest pub company by far.
However, both sides have agreed that terms may have to be altered if the Competition and Markets Authority (CMA) requires them to offload more than 100 pubs to allay concerns about the impact on choice for drinkers.
The proposed buyout comes as the hospitality industry battles increased costs because of the minimum wage increase, higher property prices and electricity bills as well as a diminishing appetite among younger customers for pub drinking.
Stonegate is backed by the private equity group TDR Capital, which agreed last month to buy the Webuyanycar.com owner, BCA, in a deal worth £1.9bn.
Ei traces its roots back to 1991. It has become Britain’s largest pub owner through a string of acquisitions, including buying former Whitbread pubs. It directly employs more than 1,800 people.
The chain has recently been shifting strategy away from tenanted pubs, where it owns the premises and rents to an independent publican, towards a managed model, where its own employees take charge. Stonegate’s 772 pubs and bars are entirely managed.
The tenanted business model has come under increasing pressure recently amid anger at the difficulty some publicans have faced when they try to cut the “beer tie”, the centuries-old arrangement under which they buy beer from the pubco that owns their premises.
The Pubs Code Adjudicator announced an investigation into Ei’s rival Star Pubs and Bars, owned by Heineken, over its behaviour towards tenants, warning that other pub companies could also face inquiries in the near future.