M&B gets back on the trail of a pubs spin-off

The group behind the All Bar One and O'Neill's brands revealed that it is working on a new proposal from property investor Robert Tchenguiz, a 20% shareholder, to demerge the company.

The 2000 pubs would be spun into a tax-favourable real estate investment trust (Reit) under the terms suggested, allowing investors to cash in on the value of the property.

The bold move, coming just months after a planned joint venture between M&B and Tchenguiz's R20 investment vehicle collapsed because of the state of the credit markets, could go ahead next year if the board give it the nod.

M&B had a profit of £207 million in the year to the end of September, slightly down on last year but much better than the City was expecting.

An air of gloom hangs over the pub trade, because of cheap supermarket sales and belt-tightening by customers. Explaining how he has defied this environment, chief executive Tim Clarke said: "I think the issue is the extent to which you have got big pubs with a cracking food offer.

"If you have that, you are performing very strongly. If you haven't moved with the times, you have a problem."

Beer accounts for less than 30% of M&B's sales. It sold more than 100 million meals last year, helping total revenue to rise 10% to £1.9 billion.

Clarke said there was much work to do before a definite decision was made to demerge. "We've had a proposal and are working on it," he said.

"Since the time when the property joint venture ran into the credit crunch, we have been thinking very hard and R20 has been thinking very hard about how we capture the full value of the estate."

Clarke declined to get into the nitty-gritty of the recent suggestion that it had been approached by Punch Taverns about a deal to create a business with 11,000 pubs. "We are not in merger talks" was all he would say.

At this point, it seems unlikely that Punch could afford M&B in any case.

The group has just added £1 billion to the value of its property portfolio, taking it to £5 billion. M&B's accountants calculate this portfolio would bring in rent of £280 million a year if placed in a Reit.

Despite an increase in the cost of the hedge against the last failed Tchenguiz scheme from £155 million to £180 million, the balance sheet remains strong. A dividend of 14.25p, up 16%, will be paid.

Trading in the three weeks to 17 November was also surprisingly good, with like-for-like sales up 2.5% thanks to the launch of a new winter menu.

M&B says the smoking ban will hurt sales in the winter, but believes that in general the new regime will make pubs nicer places to visit.

Fewer under-age drinkers may also help. M&B claims to turn away 50,000 young people a month, insisting it is committed to enforcing Government messages on safe drinking.

M&B could drop out of the FTSE 100 index in December, although this would be a moot point if the break-up goes ahead.

The shares today added 1p to 620p.