Midlands-based Punch Taverns caught the City on the hop yesterday after unveiling a £219 million takeover of privately owned Avebury Holdings.
Investors welcomed the move, even though many thought Punch had set its sights on Spirit Group instead. Speculation over the past few weeks has linked Punch to a £3 billion bid, possibly in tandem with Birmingham-based Mitchells & Butlers.
Investec analyst Matthew Gerard said: "This isn't the big acquisition that people were expecting but, nevertheless, it is financed with debt and it is earnings enhancing."
Punch, which is based in Burton-on-Trent, said it would pay £125 million in cash from existing resources and a previously announced refinancing. It will assume £120 million of debt.
The deal will give the UK's second largest pubs operator 409 leased and tenanted Avebury outlets in England and Wales including 83 in the Midlands. It should boost earnings within a year of being completed on August 5.
Avebury was formed in 1997 and has acquired more than 900 tenanted and leased pubs over the past eight years, including portfolios from Bass, Whitbread, Scottish & Newcastle and Wolverhampton & Dudley Breweries.
Management took control of the business through a buyout in 2004 and have since completed a string of disposals, including 253 pubs to Admiral Taverns last month.
As of April, Avebury's unaudited balance sheet gross operating assets were £171 million. In the year to April, Avebury generated unaudited profits of £22.2 million, before central costs and overheads.
Arbuthnot analyst Alan Millar said Avebury had clearly been groomed for a sale.
He said: "There were two fairly obvious buyers in the market for this business and Enterprise Inns has said that it does not want to go on buying pubs but will conserve cash. I don't think it will have a major bearing on whether the Spirit deal will happen or not."
Punch, which has a strategy of expansion through organic growth and acquisitions, said the Avebury deal was expected to generate savings from better terms with suppliers.
The price tag of Avebury includes the assumption of around £120 million debt in the shape of securitised bonds.
Chief executive Giles Thorley said: "The acquisition of Avebury is further evidence of Punch's ability to acquire attractive pub assets in a competitive market.
"Avebury is a natural fit with Punch's existing pub portfolio and brings further geographic spread and diversity from a high quality estate.
"Moreover, the acquisition brings with it additional synergy benefits for the enlarged group as well as an investment opportunity for the future. The Avebury estate will deliver good returns from the outset and has attractive potential for further growth."
Punch said its 7,800 pubs had continued to see steady growth and were trading in line with its expectations.
Punch Taverns closed at 7301/2p up 41/2p.