OFT OKs beer tie, pub shares surge

Thu 22 Oct, 2009 11:53

By Matt Scuffham

LONDON (Reuters) - The country's consumer regulator on Thursday gave the all-clear for leased pub operators to continue with an arrangement that forces tenants to take beer supplies only from their landlords, boosting pub company shares.

The decision by the Office of Fair Trading (OFT) was welcomed by Punch Taverns and Enterprise Inns (ETI.L), the biggest pub firms, who are already grappling with huge debts along with the impact of the recession.

Shares in Punch, which had lost 85 percent of their value over the past 18 months, were up 12 percent to 95 pence at 10:17 a.m. British time. Enterprise, which had declined in value by 70 percent over the same period, was up 16 percent to 138 pence.

Marston's (MARS.L) gained 1 percent to 92 pence, with Greene King (GNK.L) up 1 percent to 418 pence.

The OFT examined the beer tie arrangement after receiving a "super-complaint" from the Campaign for Real Ale (Camra).

"Having examined the issues raised in the super-complaint, the OFT has not found evidence that supply ties are resulting in competition problems that are having an adverse impact on consumers," the regulator said in a statement.

More than 50 pubs a week are currently being forced to close, according to the British Beer and Pubs Association (BBPA) which represents the industry.

Critics of the beer tie have said it has contributed to the closures because tenants were being made to buy supplies at prices above the market rate, making their businesses unprofitable.

Managed pub operators have fared better during the recession as they are able to be flexible on pricing, leading to operators such as JD Wetherspoon (JDW.L) offering pints of beer for as little as 99 pence.

'CLEAN BILL OF HEALTH'

The BBPA said the OFT's decision had given the tenanted pub sector a "clean bill off health" and it would press ahead with measures to "improve transparency and openness between licensees and pub owning companies."

Punch, which with 7,600 pubs is the nation's biggest operator, said it hoped the industry could "move forward constructively."

"The industry has taken significant steps in recent months to evolve the relationship between pub companies and their licensees," a spokesman for Punch said.

Enterprise, which has 7,500 pubs, defended the beer tie.

"For decades, the tie has provided a low cost of entry to the pub industry for committed, entrepreneurial licensees who are unable to afford to buy a pub of their own," it said.

Enterprise added that it was not complacent about the model and was in the process of implementing measures aimed at addressing issues raised in a report by the Business and Enterprise Committee (BEC) published in May.

The BEC had called for tenants to be given the opportunity to run their pubs without the tie, under which over half of the country's 56,000 pubs operate.

Astaire Securities analyst Mark Brumby said the decision will be a "huge relief" to the tenanted pub companies as some 15 to 50 percent of their income could have been threatened had the tie been abolished.

"The companies and their tenants now only have the recession, the consumer squeeze, the ongoing impact of the smoking ban, aggressive supermarkets and soap-boxing politicians to deal with," he added.

Camra was entitled to raise the complaint, which compelled the OFT to investigate, because of its status as a recognised consumer body.

(Editing by Hans Peters and Karen Foster)