Neil Collins

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Giles Thorley’s sucker punch (2)

June 15, 2009

Running a pubco is harder than running a bath, as Giles Thorley proved this afternoon. The dash for trash that has characterised this stock market rally had swept shares in his Punch Taverns up from 32 pence in March to 148 pence on Friday night. The chance to gulp a little air for this drowning business was too much to resist, but Wall Street’s finest struggled all day to raise the 375 million pounds Punch needs to stay solvent next year. In the end, they needed to create 140 per cent of the existing share capital at 100 pence a share, a 32.7 per cent discount.

The sum is far too small to rebalance the Punch-drunk balance sheet, with its 4.2 billion pounds of notes, but it does prevent the holders of the convertible bond forcing the company into bankruptcy when they demand their money back next year.

Punch is a cautionary tale for our times. The tedious business of running public houses was always secondary to the potential gains from financial engineering. Thorley might have made a killing from gearing up had he not run into the smoking ban, the war on drink driving and the demands of the health’n’safety police. With the business staggering under these blows, the credit crunch was the knockout punch.

The competitors have also suffered, but by nothing like as much, and some are reporting (marginal) improvements in trading. Punch’s demoralised landlords and tenants, faced with dearer beer and a “cost reduction programme” have yet to see it. There’s something to be said for knowing the business, after all.