Pubco Heads For Lifeboat

22 Mar 2011


Private equity inspired pubco Punch abandons 6,000 local pubs making private equity truly the fifth horseman of the apocalypse says GMB the union for tied tenants

GMB commented on the plan by Punch to demerge it’s tied and managed business.

Paul Maloney, GMB National Officer for tied tenants said “Last week saw private equity inspired Southern Cross care homes group put 31,000 elderly residents in danger of being made homeless. This week it is the turn of private equity inspired pubco Punch to abandon 6,000 local pubs. Private equity is truly the fifth horseman of the apocalypse.

Punch top management realise that the current structure is unsustainable and are heading for the lifeboat. They correctly conclude that the decline in trade in pubs will continue as long as they are priced out of the market trying to pay mountainous debts. The solution they have come up with is to head for the lifeboat and abandon the ship being sunk by its crippling £3.5 billion debt and leave the imperiled 5,967 tied tenants to sink with the bondholders.

The pubs are in three investment vehicles: Punch A, Punch B and Spirit. Punch A and B are soaking up cash.  So the plan is to split in two with the better performing managed side, Spirit, being demerged into a separate PLC. This is expected to be completed by the end of the summer. The plan is for A and B to become a separate cash trapped leased zombie business. This is to be reduced to 3,000 pubs, down from 5,967, selling off 500 a year.

Yet again it is the tied tenants and their customers and the communities they serve that are going to suffer as this is not a real solution. If Punch admit that trade in pubs is in decline due to being priced out of the market how do they expect the remaining 3,000 pubs to stay open and be profitable?

As we see it debts in A and B to get worse. GMB calculated the debts average £534,901 per pub and interest payment and costs linked to the loans amounts to an average of £271 per day per pub and is payable whether the pub is trading at a profit or not.  The fate of all 5,967 tied tenants looks bleak.

This is the plan but it needs the approval of the bondholders. The only real solution is to convert the debt to equity is a combined pub business as GMB proposed in November last year. We said then that for a thriving pub sector we need pub companies charging open market rents to tenants who can compete on price in buildings refurbished to a high standard and where customer service and care is the top priority. That way there will be a decent income for all the stakeholders. This is still the case. ”