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Mitchells and Butlers set to raise £350m

An open offer is being underwritten by the pub group’s three largest shareholders
February 17, 2021
  • Heavily discounted open offer at 210p per share  
  • New consortium of top shareholders has 55 per cent stake

Mitchells and Butlers (MAB) has announced plans to raise £350m via a pre-emptive open offer to help it weather the rest of the pandemic. The pub group will issue 167m new shares at a subscription price of 210p per share, which is a 36 per cent discount to its closing price on 12 February.

The funds are all but assured as the cash call is being underwritten by Mitchells and Butlers' three largest shareholders. Elpida Group – which is backed by horse-racing magnates John Magnier and JP McManus – Tottenham Hotspur owner Joe Lewis and currency trader Derrick Smith have consolidated their holdings into a new entity called Odyzean. The consortium will subscribe for its basic entitlements under the open offer and purchase any leftover shares as well.

The certain outcome means that Mitchells and Butlers will also have access to a new three-year £150m revolving credit facility which lenders had made contingent upon the equity raise being completed. The additional funds are a welcome boost as the group is burning through £35m-40m of cash each month during the current lockdown as its estate is closed.

But it’s not all good news. The shareholder consolidation is akin to a stealth takeover that could leave minority investors with a nasty hangover. Odyzean has, effectively, taken control of Mitchells and Butlers with its combined 55 per cent stake. Usually when an entity acquires more than 30 per cent of a company’s voting rights, it is required to make a takeover offer to the other shareholders. But the Takeover Panel has waived that obligation in this instance.

The consortium will not be taking a backseat role. It intends to review Mitchells and Butlers’ strategy and structure, as well as the composition of the board in order to “streamline decision making”. This could culminate in the removal of independent non-executive directors.

“We are surprised to see the company opt for such a large capital raise, and the discount is clearly very steep too,” say analysts at broker Berenberg. “Clearly all of this will put M&B on a very sound financial footing, although, in our view, it is to the detriment of minority shareholders.”

Mitchells and Butlers’ shares have risen by 50 per cent so far this year on vaccine optimism and the prospect of the hospitality sector being able to reopen. It’s worth holding onto the shares at 338p to ride out the pandemic recovery story, although amid the governance red flags, investors should consider cashing out further down the line.

Last IC View: Sell, 214p, 26 Nov 2020