Seconds out in M&B heavyweight battle

Drink-fuelled public disorder is on the Government’s hit list in the run up to the election. Don’t worry about the true causes – slapping on extra taxes and blaming retailers make for great soundbites in the battle for Middle England’s vote.

But if ministers want to witness a real brawl with alcohol as a prime driver, they should get along to the Convention Centre in Birmingham next Thursday morning for ring-side seats at a bare-knuckle, winner-takes-all fight.

The battle is over control of Mitchells & Butlers, which owns some 2,000 of Britain’s premier pubs including chains such as All Bar One, O’Neill’s, Harvester and Toby. In the blue corner is the board, headed by chairman Simon Laffin. In the red corner is Bahamas-based Joe Lewis, who owns 23% of M&B through his Piedmont investment vehicle.

Like all heavyweight contenders, they have been squaring up to each other in macho poses ahead of a vicious contest. Neither, it seems, is willing to back down.

The dispute centres on the composition of the board. Lewis alleges that Laffin and his team should be generating a much better performance, especially by increasing M&B’s margins.

His main concern, according to a spokesman, is “an increasing gap between revenues and profit before tax”. He wants next Thursday’s AGM to vote in a new board to overhaul the company’s “governance, stability and strategy”.

An independent valuation (for the board) puts M&B’s assets at about £4.5 billion but the company’s present stock market valuation is about £1.1bn.

Operating profit remains below the 2005 level but the board points to the company’s resilience during the recession and its improving prospects.

For their part, the board believe Lewis wants to get his hands on M&B’s prime properties (a path previously trodden by Robert Tchenguiz at considerable personal expense) – a charge he denies. Consequently the majority threw his nominated directors out of the boardroom accompanied by allegations that Lewis was acting in tandem with the celebrated Irish investors J.P. McManus and John Magnier, who own 17% of M&B.

The board demanded that the City’s Takeover Panel examine that allegation (which, if proven, would have forced Lewis to make a bid or back down), but the City grandees said the charge was unfounded.

The Association of British Insurers, representing the large institutions, has tried to broker a peace by suggesting that four “independent” directors be appointed and that no further board changes take place for a year (how that squares with good corporate governance is unclear).

Lewis is implacable in demanding Laffin’s head because he has “orchestrated a relentless, baseless, yet highly damaging campaign against Piedmont and its officers”.

So unless either side blinks, the shareholders will be the ring-side judges next Thursday. How they will vote is uncertain, but they will bear in mind that the company floated in 2003 and started trading at 227p and climbed to 902p in May 2007.

Today its shares stand at about 275p with most analysts tipping it to “outperform” in the next few months – hardly a surprising consensus given that whoever ends up in the boardroom has promised to deliver a better future. They have to decide which contender will deliver the best results.

Seconds out!

Finance on Friday, 22.01.2010