Roof falls in at Mitchells & Butlers
Feb 01, 2008
When it “sticks to selling beer and grub”, Mitchells & Butlers is a decent business, said Nils Pratley in The Guardian. But following its “disastrous flirtation” with a property-based deal entailing hedging positions that went wrong, it’s launched a strategic review – “shorthand for saying it is open to bids”.
M&B’s mistake was listening to property tycoon Robert Tchenguiz, said Jeremy Warner in The Independent. A major shareholder, he argued that by separating the group’s property assets from the operating firm, “billions of pounds worth of value” could be unlocked and heaped upon investors.
What went wrong?
Firstly, last August’s credit crunch. The joint venture with Tchenguiz was shelved when banks, including Citigroup and RBS, “pulled their promises to lend”, said John Foley on Breakingviews. Secondly, M&B, having been required to set up inflation and interest-rate hedges as part of the deal, then failed to close them in the hope markets would stabilise and “a smaller deal might work instead”. However, it was no longer a hedge “but a giant open-ended bet” racking up a £274m loss as markets moved against it before the group exited from the positions, said Patrick Hosking in The Times. The whole board seems to have been “financially naïve”.
Quite, said Warner. Pubs and restaurants are only valuable as properties “because of the profits they generate. Otherwise they are merely pieces of land. Trying to hive one off from the other and pretending you now have two companies is a “cosmetic exercise”. What a pity M&B fell for “the siren calls of clever financiers”.
MAB: 12m change -42%
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