Texas Pacific Group Bellies Up to the Bar In $4.4B Pub Deal –

Less than three months after buying control of the U.K.’s Punch Taverns for $1.3 billion, Texas Pacific Group looks set to lead the acquisition of Allied Domecq PLC’s pubs business for $4.4 billion, giving the Texas buyout firm control of approximately 5,000 British pubs.

The deal, should it close, will be one of the largest European acquisitions this decade led by an LBO group.

Terms of the transaction were not disclosed, but a source close to the firm said TPG is teaming up with CVC Capital Partners, Colony Capital, DB Capital Partners-formerly BT Capital Partners-and The Morgan Stanley Real Estate Fund on the transaction. The source also said Allied management and financier George Soros will have equity stakes, but declined to give further details.

If the deal closes, TPG will fold the Allied pubs into Punch Taverns, owning between 40% and 50% of the new company.

Partners at TPG declined to comment for this article.

The TPG-led investment group still has to win approval from Allied’s shareholders for the acquisition. In the meantime, the drinks conglomerate, advised by Merrill Lynch & Co., may entertain rival bidders, the most formidable of which is Japan’s Nomura International PLC, the largest pubs owner in the U.K. The Japanese investment powerhouse reportedly is preparing a final counter offer in partnership with Whitbread PLC, which earlier had put in its own independent bid for Allied’s pub holdings.

A Public Pub Brawl

When TPG acquired a 70% stake in Punch Taverns in May for $1.3 billion-previously reported as $800 million-the pub group already had expressed interest in Allied’s 3,600 pubs. Whitbread, a large conglomerate which also owns the U.K. Pizza Hut franchise, already had secured a deal with Allied to buy its pubs for approximately $3.8 billion. In July, after a very public and nasty bidding war, which involved anti-Whitbread ads placed in newspapers by Punch Chief Executive Hugh Osmond, Whitbread dropped out of contention.

As part of the transaction, Bass PLC, a pub chain controlled by Morgan Stanley Capital Partners, will purchase 650 of Allied’s pubs for $1.6 billion. Punch reportedly agreed to this to avoid facing anti-competitive charges. It was after the government raised concerns that Whitbread might control too much of the pubs market that the firm dropped out of the bidding.

The source said that although the total transaction value of the Allied acquisition will be the largest deal TPG has ever participated in, it will not represent the largest equity commitment made by the group. That occurred in May when TPG agreed to buy a semiconductor components division of Motorola Inc. for $1.6 billion-$350 million of that in equity (BUYOUTS May 17, p. 1).

The TPG-led group’s battle with Whitbread marks the second high-profile bidding war in the U.K. between an American buyout firm and a British rival in as many months. In June, Hicks, Muse, Tate & Furst Inc. beat out Candover Investments PLC in the $1.39 billion acquisition of Hillsdown Holdings PLC, a food and furniture company (BUYOUTS July 5, p. 14), after a protracted bidding war.