Deltic Revs up to overtake Stonegate takeover

Peter Marks is a very nice chap – everyone will tell you so. But, he may have found himself off a few Christmas card lists after yesterday.

Marks’ Deltic Group unleased an absolute corker of an announcement on a sleepy August market when it made public its approach to merge with Revolution Bars Group. During a period where beaches have largely replaced boardrooms there will no doubt have been a few Pina Colados (ok maybe Bloody Marys at that time of the morning) sprayed in surprise at this audacious announcement.

Not that a Deltic approach for Revolution is in itself a surprise, but with the offer already firmly declined by the Mark McQuater-led board, why was the former Luminar now making this all public?

Marks insisted in an interview with MCA yesterday he felt strongly that Revolution shareholders should hear him out. After all, he stressed, the offer from Stonegate was merely parity with the price Revolution listed at in March 2015. A merger with Deltic would make a late-night “powerhouse” with a resulting boost in investor confidence and a wider scope for future growth. He went as far as to say that if investors were going to accept Stonegate’s £2 a share bid they “might as well have gone down the garden, dug a big hole and put their money in it for two years”.

Revolution shareholders would undoubtedly like a better price from Stonegate. Who wouldn’t? But would a repayment of their investment be seen as necessarily a bad thing? Over the past two and a half years, Revolution’s share price has spent significantly longer below than above the price it listed at. Even before the cliff-edge its May profit warning proved to be, the group had fluctuated between a low of £1.49 in August 2015 and a high of £2.30 in March of this year, with the price for most of that period below the £2 mark.

There is also the complication of exactly how a “merger” between the two would work. Deltic’s announcement contained no detail of what value the company put on itself but would it exceed the £100m Stonegate’s deal values Revolution at? If so, where does this leave Revolution shareholders?

Marks told MCA he was confident that investors would see the value of a large-scale, well-invested late-night group with strong brands, especially at a time when wet-led bars are coming “back in vogue” in the eyes of investors. But, will the bruised and battered shareholders of Revolution share his faith that the market does actually like wet-led and late-night? Especially given all McQuater’s efforts over the past few years to shed Revolution of its image as a pure late-night business.

Speaking to a selection of sector experts yesterday the sense was that Deltic’s approach had little chance of swaying Revolution shareholders. However, Canaccord’s Nigel Parson has suggested that Deltic’s management should be given the time to present their case to Revolution shareholders, and that at the very least Stonegate will need to sweeten the pill a little.

There was a general feeling that the market just doesn’t “get” late-night businesses and that while casual dining operators might be facing the stiffest headwinds they still seem a safer bet. The growing appetite for investments in the pub sector could be seen as a good sign for nightclubs, but a large part of the attraction for the former appears to be in a diverse, asset-based portfolio. It was noted that for all Marks’ optimism, Deltic hasn’t taken the plunge into the public arena that has long been mooted. For all its successful rebranding, does the board fear that shadow of Luminar still unsettles investors?

If we side with those proclaiming that Marks and co have little chance of winning this battle, the question must be asked what was behind the announcement?

Deltic’s backers were probably expecting to have seen an exit plan by now and although the EU referendum has led to all investors having to redefine their timescales, is this a very public show by the Deltic board that they are working towards a lucrative end game?

Is it a way of testing market sentiment for a listed late-night operator? If so there is little to glean from Revolution’s yo-yo-ing share price yesterday, which finally settled in more or less the same place it started.

Or, could this be a message to Stonegate itself, and its supportive backers in TDR Capital, that Deltic would make a very attractive acquisition prospect at some point and present good synergies with Revolution? It’s not the first time that the idea of Stonegate buying Deltic has been floated. Although, it would undoubtedly pique the interest of the Competition and Markets Authority. It would also seem a strange seduction tactic to have so publicly rained on Stonegate’s parade during its current courtship.

Perhaps over the weeks to come the reasons will become clearer but whatever they are, Marks remains a powerful proponent of a strong late-night sector, however it is funded.

Asked what he will do if his bold move falls flat, Marks insisted he would carry on with the plan at hand.

“But I can confirm we’re not looking to buy a pier”, he added. “I’ll leave that to Luke (Johnson).”

There you have it, the pier-less Mr Marks. You couldn’t stay angry at him for long.