Amid widespread confusion-led carnage for the UK’s banks, and bad corporate news for Next, Easyjet and others, Mitchells and Butlers was languishing among the fallers in London.
Investors marked the pubs company down about 10 per cent. A report from Lehman Brothers got the stock moving, after analysts suggested that the company would require refinancing after suffering losses from the closure of its disastrous hedge facility.
Lehman’s analysis suggests that M&B is close to exhausting its £300m revolver by the end of the year – and options for management’s strategic review look scarce. The credit crunch, having done for their real estate JV and their hedging, is limiting room for manoeuvre.
Trading itself out of the corner looks tricky. Cutting capex would severly dent the group’s growth prospects. Pub disposals look improbable given the market for fund raising and in any case, cash is needed at the parent level, rather than within the securitised estate – where incidentally the majority of M&B’s issues have been guaranteed by US monoline Ambac. The Whitbread pubs – held at the parent level – would need attract a hefty price to cover M&B’s debt, note Lehman.
Can M&B sell? Supposed suitor Punch wasn’t faring much better on Wednesday, down more than 6 per cent. Say Lehman:
The company has announced it has received several approaches including one from Punch Taverns. However, given the restricted covenants and need to refinance £600m of debt immediately plus the costs of acquisition and the cost of refinancing the pension scheme – we believe a sale in the current market environment would be difficult and a full price hard to achieve.
Which leaves a dividend cut, and an unspecified capital injection as the options on the table.
Update – M&B has come out fighting. It said in a statement to the stock exchange:
These comments are without any basis and Mitchells & Butlers categorically refutes these suggestions.
Related links
M&B may tap buyout groups for cash boost – Sunday Telegraph
M&B chair sorry for £391m hedging failure – FT.com
Punch in offer to buy M&B – FT.com