A loss of £140 million for Mitchells & Butler

Mitchells & Butler (M&B) gambled on the future direction of inflation and has lost £140 million. The owner of All Bar One, the stylish cosmopolitan bars, struck a £4.5 billion deal with Iranian tycoon Robert Tchenguiz.

To protect the deal from falling rents and higher debt, M&B purchased an expensive financial hedge with bankers Citigroup and Royal Bank of Scotland.

The partnership included moving 1,300 pubs into a new company jointly owned by Tchengiuz had to be cancelled due to the credit crisis. However, M&B are unable to get out of its loss-making bet. The hedge intended to pay M&B (down 29p to 590p) compensation if long-term interest rates increased and inflation dropped.

Unfortunately for M&B, inflation is rising and long-term interest rates have declined. In the short-term, this will not affect the publican’s profits as it does not have to settle the loss on its betting account until the hedge runs out in 20 years time.

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