UK pub operator Young’s has agreed a deal to buy competitor City Pub Group, which operates 50 venues across southern England in a £162mn deal, as the sector struggles to grow as high interest rates, energy costs and a squeeze on consumers have hit the sector hard.
City Pub Group said it intends to recommend unanimously that shareholders vote in favour of the scheme. Under the terms of the acquisition, each City Pubs shareholders will be entitled to 108.75p in cash and 0.032658 of a new Young’s A Shares for each City Pubs share, valuing City Pubs at approximately £162m.
This represents a premium of 46% to the closing price of 99 pence per City Pubs share on the last practicable date; and 65% to the volume weighted average closing price of 88 pence per City Pubs share over the three months ended on the last practicable date.
Young’s chief executive Simon Dodd noted that both businesses had “performed well in a tough trading environment recently”, adding that the acquisition would “allow us to expand our estate through the addition of a complementary, high-quality pub and bedroom portfolio, with the potential for the benefit of significant operational synergies”.
The acquisition, which is set to close in the first quarter of next year, will give Young’s access to a primarily freehold estate in popular locations across London and south-east England of mainly wet-led pubs, and it will increase Young’s number of bedrooms by more than 25 per cent to 1,065 rooms.
Clive Watson, founder of City Pub Group which has been listed on London’s Aim since 2017, said the board had initially rejected Young’s earlier approaches but after careful consideration decided the deal “significantly accelerates the value that could be realised in the short term by City Pubs if it were to remain independent”.
“Young’s has closely followed the City Pubs estate for some time and holds City Pubs’ premium, well-invested and wet-led approach in high regard,” the business said. “The transaction represents a rare opportunity to acquire a high-quality pub and bedroom portfolio of scale, allowing Young’s to increase its managed trading estate by 50 pubs to 279 pubs. Young’s notes City Pubs head office costs in the 52-weeks ended 25 December 2022 of £5.6m and believes it will be able to integrate the two estates, and operate the incremental pubs and bedrooms, with very limited additional overheads. City Pubs’ predominantly freehold portfolio of premium, individual and well-invested pubs and bedrooms presents an attractive opportunity for Young’s to drive future growth.