Daily Investment Market News from London
Saturday 04th of February 2012
September 19, 2007

A loss of £140 million for Mitchells & Butler


by Kay Murchie

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.

Story link: A loss of £140 million for Mitchells & Butler



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