Is Punch Taverns plc a buy on Heineken-Patron takeover offer?

Heineken could be considering an offer for Punch Taverns plc (LON: PUB).

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in Punch Taverns (LSE: PUB) are surging today after it was revealed that the company has received not one but two takeover approaches from two potential suitors, one of which is backed by beverage giant Heineken.

The first offer is from Patron Capital Advisers for 174p per share. Under the terms of the proposal, Heineken would buy Punch from Patron immediately on completion of the deal. According to Punch’s press release on the matter, the group is in advanced discussion with all parties concerned with this offer. 

The second offer comes from Emerald Investment Partners, the private family firm run by Alan McIntosh, one of Punch’s founders. Emerald’s offer is for 185p per share in cash, although this offer is “conditional on, amongst other things, arranging committed financing, confirmatory due diligence, and the recommendation of the board.” 

Punch also warns that as of yet there can be no certainty that any firm offer will be made by either Patron or Emerald. Both suitors have a deadline of 5 pm on 11 January to make an official, firm offer for Punch or walk away. 

Time to buy? 

Punch’s shares are up by 39% after this deal announcement and are currently trading at 178p, just above the Heineken-Patron takeover offer. As the shares remain below the Emerald offer, it looks as if the market believes this deal won’t go ahead and Patron will win control of Punch. That being said, the fact Punch’s shares are trading above the offer price indicates traders believe Patron might come back with a higher offer to fend off Emerald.  

It’s always difficult to predict the outcome of any takeover battle. Patron could make a higher offer, or both bidders might drop their proposals altogether. In this scenario, it’s reasonable to assume Punch’s shares would quickly fall back to pre-bid levels. 

With this being the case, it might not make sense to buy Punch right now. Yes, a higher offer could reward investors with a few percentage points of profit, but in the event a deal doesn’t take place, the downside could be as much as 33%. The risk/reward here is skewed against investors. 

Look to the long-term 

Punch Taverns has always been a dull stock. During the past five years, pre-tax profit has hardly budged, earnings per share have stagnated, and there’s been no dividend for investors. A bid for Punch will give the company’s long-suffering shareholders a profitable way to exit the business. 

By comparison, peer Marston’s has grown pre-tax profit from -£136m for 2012 to £81m for 2016 and is expected to report a pre-tax profit of £102m this year. Furthermore, shares in the company support a dividend yield of 5.5%. 

So overall, considering the tiny returns on offer and the company’s history of underperformance, Punch Taverns isn’t a buy on takeover chatter. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »