Inside Track by Peter Martin
Mitchells & Butlers should have bitten the bullet some time ago. If Britain's leading pub and restaurant retailer had been bolder and already made a move for Whitbread's pub restaurant business, would it be in the position it finds itself today?
Bolting on the Beefeater and Brewers' Fayre estates has been seen for some time as the obvious deal for M&B to make to grow its retail operation. But now, just a week after picking up the Best Company trophy at the Retailers' Retailer Awards, M&B is on the back foot, in defensive mode, awaiting a multi-billion bid from property tycoon Robert Tchenguiz.
Despite its undoubted retail excellence, the M&B board's one short-coming has been its apparent inability to do a deal. Senior executives have spent plenty of time in recent months sitting in Beefeaters plotting a plan, but without acting. As management consultants would surely conclude: too many reflective theorists, not enough active pragmatists.
A merger of M&B's and Whitbread's eating-out businesses would create the dominant force in UK casual dining and remains a mouth-watering prospect. It is a deal that still needs to be done.
For M&B, it would accelerate its move into the food market and allow it to shed high street and wet-led community pubs. Beefeater would bring a brand it could continue to develop, and the Brewers' Fayre estate would establish a long-term pipeline for its existing suburban eating concepts - Harvester, Vintage Inns, Toby and Project S.
M&B's reticence to pulling out is wallet has always been put down to a concern about over-paying. It seems obsessive about it. But Tesco, the country's top retailer that M&B so admires, has never been afraid to pay top dollar for real estate to secure its roll-out pipeline, why should M&B?
A deal with M&B, would also make good sense for Whitbread. Chief executive Alan Parker showed his intention this month to put hotels at the heart of his business, with the £34.5m acquisition of seven Holiday Inns for conversion to the Premier Travel Inn brand. Whitbread could gain an important strategic partner in M&B for both Premier Travel Inn and its Costa coffee operation.
But M&B now finds itself waiting for a bid, and weighing up its defensive options. Raising more debt and returning more cash to shareholders had been suggested as one possible move, another is to sell off its community pubs now.
It is not clear yet if Tchenguiz will actually bid - and what he would do with M&B if he did get it, is another matter again. If he does act, others will surely follow. M&B is too attractive a business to be allowed to go quietly.
One unlikely, though intriguing, possibility, would be for Whitbread to emerge as a “white knight”. Is it beyond the realms of imagination to see Alan Parker, rather than M&B boss Tim Clarke, put that “dream” deal together?
