Deutsche Bank buys 3,000 pubs in Britain

$2.3 billion deal makes bank's buyout fund 4th-largest bar owner

March 21, 2001|By BLOOMBERG NEWS

LONDON - Deutsche Bank AG's buyout fund agreed to buy Whitbread PLC's 3,000 pubs for 1.6 billion pounds ($2.3 billion) and plans to turn their steady income into ready cash by selling bonds backed by future food and drink sales.

Morgan Grenfell Private Equity will become Britain's fourth-largest bar landlord with the purchase, joining Nomura Securities Co. and Westdeutsche Landesbank Girozentrale as pub owners. The three buyout companies control a fifth of Britain's 60,000 pubs.

"Venture capitalists are buying pubs because they provide strong, reliable cash flow," said Mark Reed, an analyst at Teather & Greenwood with a "hold" rating on Whitbread's stock. "They can securitize the earnings and get a reasonable return without investing too heavily." About 10 percent of Britain's pubs have been put up for sale in the past year as pub owners focus on more upscale chains such as Bass PLC's All Bar One. Whitbread sold its breweries last year and put the pubs up for sale to focus on faster-growing hotels and restaurants such as Travel Inn and Pizza Hut in the United Kingdom.

Most of the bars for sale are leased to independent operators, though some are directly managed chains - such as the 150 Hogshead bars that Morgan Grenfell is buying, along with Whitbread's other pubs. Morgan Grenfell is buying 1,288 directly managed outlets and 1,700 leased sites.

Deutsche Bank shares rose 3.2 euros, or 4.1 percent, to 81.6 euros. Shares of Whitbread, which operates U.K.-based Marriott hotels, fell 6 pence, or 1 percent, to 594p. Whitbread, Britain's biggest owner of budget hotels and health clubs, plans to pay most of the proceeds from the sale to shareholders, keeping 445 million pounds to help reduce debt. Shareholders will receive a cash payment of 230 pence a share or a loan note alternative. The company expects the transaction to be "substantially complete" by June.

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