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Monday 23 September 2019

Battle heats up over takeover of nightclub operator Revolution

Deltic has proposed an all-paper merger that would see embattled group Revolution own 65% of the combined business and Deltic the remaining 35%.

Revolution Bars Group plc
Revolution Bars Group plc

By Holly Williams, Press Association Deputy City Editor

Britain’s biggest nightclub operator has turned up the volume in its bid to merge with rival Revolution Bars after it outlined its plans to create a bar giant with annual sales of more than £270 million.

Deltic is proposing an all-paper merger that would see embattled Revolution own 65% of the combined business and Deltic the remaining 35%.

The proposed tie-up sees Deltic go head-to-head with Slug And Lettuce owner Stonegate, which struck an agreement in August to acquire Revolution Bars in a £101.5 million deal.

Revolution, which owns more than 60 Revolution and Revolucion de Cuba high street bars, has already rebuffed an approach from Deltic over “significant concerns regarding both value and deliverability”.

But Deltic – whose estate spans 57 nightclubs – said it was “disappointed” by Revolution’s “instant dismissal” of the proposal and wanted to take the merger plan straight to shareholders.

It said: “Deltic has determined that the merger proposal… is best shared directly with Revolution shareholders as it is they who ultimately need to determine the future of Revolution rather than its directors.”

The group has now given Revolution access to its books.

“Deltic believes the merger proposal represents a compelling value creation opportunity for Revolution and its shareholders and would welcome the opportunity to engage with the board of Revolution on a constructive basis,” it added.

Deltic still has to put forward a firm offer or walk away by 5pm on October 10 under City takeover rules.

The latest twist in the takeover saga comes after Revolution revealed earlier this week that annual profits fell by 29% to £3.6 million and cautioned over cooling Autumn sales.

The Ashton-under-Lyne-based firm said like-for-like sales rose by 1.5% in the year, but added that trading since its year-end has been hit by a “disappointing” September, with first-quarter sales growth easing back to 0.3%.

Its bottom line has been knocked by a sector-wide surge in costs, including the impact of the living wage and the new apprenticeship levy, as well as an above-inflation increase in business rates.

Revolution issued a profit warning in May, which sent shares tumbling and sparked off takeover interest in the group, with Stonegate first out of the stalls with a bid of 203p a share.

Stonegate is the fourth largest managed pub company in the UK by sites.

Deltic’s estate includes those operating under the PRYZM, Bar And Beyond, Steinbeck And Shaw, Atik, and Fiction brands.

Shares in Revolution fell 2% despite the intensifying bid battle.

Douglas Jack, an analyst at Peel Hunt, said Deltic’s earnings power – having nearly doubled since 2013 – made its merger proposal worth considering.

He said: “With such strong growth and returns, there is a case for equity offers being as attractive as cash offers.”

“Revolution shareholders… now have to decide whether to follow the board’s recommendation to take 203p a share cash and de-list the company, or aspire to something greater,” he added.

Revolution said it would provide a response to Deltic’s approach “in due course”, while Stonegate dismissed the rival proposal.

Ian Payne, chairman of Stonegate, said: “The Deltic proposal does not offer any cash to Revolution shareholders and is highly conditional and uncertain as to deliverability and timing.”

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