The effective abolition of the beer tie in the pubs industry has sent investors into a panic with share price declines noted across the sector. Enterprise Inns (ETI), Punch Taverns (PUB), Marston's (MARS), Greene King (GNK), Spirit Pub (SPRT) and Mitchells & Butlers (MAB) all fall after last night's (18 Nov) news.
The House of Commons vote went in favour of allowing landlords to have an independent rent review and buy their beer on the open market. Historically, the beer tie has forced landlords to buy beer from the brewers which own their pub. Higher than average purchase costs have been offset by lower rental fees.
Although the amendment is not yet legal and could still be challenged, it is deemed a negative development for the pubs industry. Operators may respond to the drop in beer sales income by reducing investment in their sites which would leave the pubs unable to compete with managed houses. That could lead to an acceleration in the number of pub closures.
Enterprise Inns has issued a statement on the House of Commons amendment, with chief executive officer Simon Townsend saying: The Government completed a thorough and extensive review of how best to enhance protection for tied tenants. As a result, it rejected the "market rent only" option as damaging to pubs, communities and the wider industry.
'Independent economic research, commissioned by the Government, found that a "market rent only" option would lead to widespread pub closures, significant job losses and reduced investment in the sector. This amendment is a disproportionate response which proposes fundamental change that is wholly contrary to the findings of the consultation, from which the Bill was drawn up.'
Punch Taverns says the amendment would create 'an unworkable two tier economic market' and would be contrary to existing legal contracts and property rights.
By 9am, the following share price movements were recorded:
Enterprise Inns -12.3% to 108p
Punch Taverns -9.6% to 137p
Spirit Pub Company -9.3% to 98p
Marston's -4% to 140.9p
Greene King -3% to 763p
Mitchells & Butlers -2.4% to 360.3p
The decline in Spirit is interesting given it is presently in a takeover situation with Greene King. The fall in the share price implies the market no longer believes the bid will go through, although you do have to factor in that the offer is partially funded by Greene King shares which have declined in value today.