Stonegate Pub Company has agreed to buy British pub owner, Ei, for £1.27 billion, taking on the company's more than 4,000 pubs.
Ei's proposed buyout comes as British pub operators and restaurant chains have been battling increased costs due to a minimum wage hike, higher property prices and power bills as well as a move away from pub drinking by younger UK residents.
Last year, Ei appointed Rothschild & Co to explore options including a full or partial sale of its commercial properties business. In January, Ei agreed to sell 370 commercial properties for £348 million.
The Stonegate deal values Ei, formerly known as Enterprise Inns, at £2.97 billion, including debt.
"We believe the acquisition rationale is compelling, and, given the outlook for UK consumer and property valuation, could be attractive to Ei Group shareholders, albeit this is still at a larger discount to NAVp than some would like," Liberum analyst Anna Barnfather said.
Britain's Largest Pub Owner
Ei, which traces its roots back to 1991, has become Britain's largest pub owner through several acquisitions, including buying former Whitbread pubs. It employs more than 1,800 people.
The company's properties are mainly run as leased and tenanted pubs, with total property assets valued at £3.6 billion, according to its website.
Ei group Chairman Robert Walker said the commercial benefits of combining the companies are compelling.
He stated, "This is a combination [Ei's board] can recommend with confidence to shareholders and stakeholders alike."
Ei directors intend to unanimously recommend the offer to shareholders. They were advised by Deutsche Bank and Rothschild & Co while Barclays is acting as financial adviser to Stonegate.
Stonegate, which has a national estate of more than 765 operating outlets, began trading in November 2010 after buying 333 pubs from Mitchells & Butlers. It has since grown in size and scale through a series of acquisitions.
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