Punch aims to demerge Spirit division to focus on tenanted pubs

The demerger at Britain’s biggest pubs group will see the better-performing Spirit division, whose pubs are run directly by its own managers, become an independent public company, leaving Punch with the tenanted pubs which are rented out to publicans.

“We are pleased to announce the formal intention to demerge Spirit,” said chief executive Ian Dyson in a statement.

“This will create the foundation for both Spirit and Punch to execute their plans to deliver long-term sustainable value for all of our stakeholders and builds on the significant progress that both businesses have made over the last year.”

The deal is subject to shareholder approval at a meeting on July 26 and will cost £30m, leaving £113m in liquid assets to be transferred to Spirit and £92m for Punch itself.

Spirit currently consists of 803 managed pubs and 549 leased pubs while Punch has 5,080 pubs which it plans to cut to about 3,000. Spirit will have about 85 Yorkshire pubs while Punch will have about 200.

Both companies will be listed on the London Stock Exchange.

Mr Dyson will be chief executive of Spirit, with Mike Tye as deputy CEO and Russell Margerrison as interim finance director. The company will target the expanding dining-out market and said it plans to adopt a “progressive dividend policy”, with a payout of 33 per cent of net income over the medium term.

In coming years Spirit plans to convert up to 100 of its leased pubs into managed pubs. Other leased pubs unsuitable for conversion will in time be sold, leaving Spirit a solely managed pubs chain.

Roger Whiteside will be chief executive of the new Punch, with Stephen Dando as finance director. It plans to sell the ‘non-core’ pubs at a rate of around 500 per year.

The demerger follows a strategic review which concluded in March that the group’s current structure and finances are a “barrier to realising value” and unsustainable.

It said there are limited synergies between the managed and leased pub businesses, and that the Spirit arm needs investment to capitalise on its growth potential.

Greg Johnson, an analyst at Shore Capital, said: “The proposed demerger of Spirit allows investors to focus on the attractive 800-strong managed pub business. Not only is the food-led operation well positioned structurally, we believe that there is significant scope for margin recovery after several years of underperformance.”

Punch shareholders will get a new Sprit share for each Punch share they hold.