Greene King's Spirit deal would affect competition, rules CMA

The proposed £774m takeover of Spirit pubs by rival Greene King would "substantially" affect competition in the pub sector, the Competition and Markets Authority (CMA) has ruled today.

This marks an unexpected development in the on-going acquisition process, in which Greene King has repeatedly made moves to takeover Spirit.

The CMA stated that there would be competition issues in 16 local markets, but conceded that it would not need to take its investigation into the potential acquisition to the next stage should the parties offer "acceptable undertakings" over those markets before the deadline of 18 May.

The ruling said: "In a small number of areas, the CMA found that the parties' pubs were in close proximity, were each other's key rivals, and did not face sufficient competition from other outlets, meaning that the loss of that competition may lead to an increase in prices or a deterioration in the quality of the offering."

Analysts had previously predicted that the groups would need to sell just 100 pubs to satisfy competition demands.

Both companies have acknowledged the CMA's ruling, and commented that they will now put proposals to the CMA to address its concerns, to enable the original transaction to be approved without the need for further investigation.

They also reiterated their expectations that the acquisition would be complete by the end of June this year, according to the original timeline.

Greene King valued Spirit at around £773.3m, or 115 pence per share, in November 2014, having made its takeover intentions clear just weeks before. It had offered a 100 pence per share bid to begin with in September, but this was rejected.

Under the existing offer, Greene King shareholders would have over 71% of the business, with Spirit retaining the remaining 29%. The deal would create the UK's biggest managed pub firm.

Rooney Anand, Greene King chief executive officer, commented: "This is a sensible decision by the CMA, reflecting a small number of local areas where competition may be diminished as a result of our acquisition of Spirit. We are confident we will be able to offer suitable undertakings, which will keep the number of pubs we need to sell to a minimum and allow the acquisition to complete before the end of June."

Spirit has 770 managed pubs, including the Taylor Walker and Fayre & Square brands (with 1,227 pubs overall) while Greene King has 1,000 managed pubs and around 900 tenanted and leased pubs.

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