MBO price proves too big to Swallow

The Swallow Group is in talks to sell its Sheffield brewery and 105 pubs to Mansfield.

The move follows last week's collapse of a management buyout (MBO) deal led by the younger brother of Swallow chairman Sir Paul Nicholson. Since that collapse Nicholson has resigned.

Nicholson publicly criticised the board's decision after it decided that the supply terms between the MBO team and Swallow were unacceptable. The deal included a 15-day credit term and would have tied Swallow to a five-year distribution deal.

"The whole reason to exit brewing is to get away from a tied system," said chief executive Peter Catesby.

Swallow is to abandon brewing to concentrate on expanding its 36-strong hotel chain.

It is understood that Swallow is also considering a bid from Cleveland-based Pubmaster for the remaining 245 pubs, but it is increasingly likely that the Sunderland brewery will close, with 600 losing their jobs.

Events have become further complicated by Government intervention following a Parliamentary question by Derek Foster, Labour MP for Bishop Auckland. Swallow has yet to respond to an offer, said to be between £3m and £5m, from the Department of Trade and Industry to revive the MBO deal and save jobs.

Swallow shareholders have always known that there would be a premium to pay for an MBO deal, but it would have saved jobs because both breweries would have stayed open. But the difference between the MBO deal and other options was said to have been about £15m.

"It was too much of a gap," said Catesby.

by Christina Golding