The bidding war for Revolution Bars (RBG) has taken another twist. Deltic, along with its holding company Ranimul, has come back with an all-equity merger proposal. Under the terms of the deal Ranimul shareholders would own 35 per cent of the combined entity, with Revolution shareholders holding the remaining 65 per cent. The nightclub owner has until 10 October to make the offer official.
Deltic management has said that Stonegate Pub Group’s 203p per share all-cash offer fundamentally undervalues Revolution. Deltic said the enlarged group would benefit from £6.8m in pre-tax synergies and £0.9m in financing synergies, and that gearing would be no higher than 1.5 times adjusted cash profit.
At 203p a share (Stonegate's offer price), Peel Hunt analysts estimate Revolution would be valued at about 4.6 times enterprise value to cash profit, or 15 per cent equity free cash flow yield should the deal complete. The addition of Deltic would add £54m in equity, implying a market capitalisation of £156m. That's compared with Revolution's current £105m market valuation. That means the all-share offer would be hardly at all dilutive to Revolution's shareholders. It could also potentially allow Revolution to pay a higher dividend.
In response to the suggestion of a renewed offer from Deltic, Revolution stated that there was “no certainty that the merger proposal would be likely to lead to a transaction”, or that the nightclub operator would make the offer an official one. At the full-year results management had encouraged shareholders to take the cash offer from Stonegate, but added that if Deltic were to come back with a cash offer then the board could change its mind.
Stonegate chairman Ian Payne called Deltic’s new offer “highly conditional and uncertain”, in terms of the company's ability to deliver and its timing. He added that the cash offer should be particularly appealing to Revolution's shareholders given industry headwinds from cost inflation, labour, rate rises, and consumer uncertainty. A Stonegate representative declined to comment on whether the pub group would consider revising its offer in light of Deltic's latest proposal.
