Mitchells & Butlers plc Acquires Majority Stake In The Orchid Group Estate For £266 Million

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Mitchells & Butlers plc ("Mitchells & Butlers"), the UK's largest operator of managed pubs and restaurants, announces today that it has acquired the majority of the activities of the Orchid Group ("Orchid"), including 173 predominantly freehold pubs and the Orchid head office. The purchase price, paid entirely in cash, is £266 million.
 
Highlights

 - High quality, well-located estate of 173 pubs, of which 158 are freehold or long leasehold.
 - Expands Mitchells & Butlers' share of the growing UK branded pubs and restaurants market in line with its stated strategy.
 - Opportunity for substantial sales and profit uplifts from conversion of 96 pubs to Mitchells & Butlers brands and formats over a two year period.
 - Cost savings and synergies of at least £6 million per annum available from rationalisation of support functions and combination of purchasing.
 - Immediately enhancing to adjusted earnings1 with further improvements to earnings and returns as cost savings and synergies are realised and as conversions are undertaken. Overall, expected double digit earnings enhancement1 with returns well ahead of cost of capital.
 
Commenting on the transaction Alistair Darby, Chief Executive of Mitchells & Butlers, said:
 
"The acquisition of the majority of the Orchid estate will accelerate Mitchells & Butlers' growth and present significant opportunities for value creation through cost savings, synergies and the conversion of Orchid pubs to Mitchells & Butlers brands. We greatly look forward to welcoming the Orchid employees who will transfer to Mitchells & Butlers as a consequence of this acquisition."
 
Details of the transaction
 
Mitchells & Butlers has acquired the majority of the Orchid estate following a sale process conducted by the owners of Orchid. The acquired assets comprise 173 pubs, the Orchid head office function and associated brands, contracts and licenses (the "Acquired Assets"). The transaction is structured as a purchase of assets and certain trading companies. Definitive documentation has been executed with the vendor, Orchid Structureco 1 Limited, at which time the transaction simultaneously completed.
 
The consideration for the acquisition is £266 million which has been settled in cash and which is subject to an adjustment of up to £2 million depending on the level of working capital and cash in the business at completion. Mitchells & Butlers has funded the substantial majority of the consideration using existing cash resources in addition to putting in place unsecured facilities totalling £150 million, provided by existing lenders. The new facilities have a maturity of three and a half years.
 
The owners of Orchid have retained a number of leasehold sites. As Mitchells & Butlers has acquired the Orchid head office function, it has agreed to provide services to these sites for a period of up to fifteen months, the terms of which have been agreed under a transitional services agreement ("TSA").