Punch Taverns plc / Pubmaster Ltd

OFT closed case: Completed acquisition by Punch Taverns plc of Pubmaster Ltd.

Affected market: Pubs

No. ME/1576/04

The OFT's decision on reference under section 22(1) given on 25 February 2004.

Please note text in square brackets indicates range inserted at request of parties.


Punch Taverns is a publicly listed company which, prior to the transaction, owned over 4,500 tenanted pubs in the UK.

Pubmistress Ltd is the holding company of the Pubmaster Group.  Prior to the transaction, the Pubmaster estate comprised of [around 3,100] tenanted pubs located throughout the UK.


On 6th November, Punch entered into an agreement to acquire the entire share capital of Pubmistress Limited.  Punch also entered into an agreement to simultaneously sell 206 pubs (see [note 1]) to a special purchase vehicle (SPV) wholly owned by Powertitan Limited.  Both of these transactions completed on 1st December 2003.

On 18th December 2003, Powertitan agreed to sell its 206 pubs to joint ventures controlled by Flodrive Holdings Limited and Real London Properties (UK) Limited.  Punch also agreed to sell an additional 47 pubs from the combined Punch/Pubmaster estate to the same joint venture companies.  This transaction was completed on 23 January 2004, and the SPV has since been disbanded.

The transaction was notified on 21 January 2004.   The administrative deadline is 17 March 2004 and the statutory deadline is 31 March 2004.


As a result of this transaction Punch and Pubmaster have ceased to be distinct.  The UK turnover of the Pubmaster pubs being acquired exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied.  A relevant merger situation has been created.


There have been a range of cases involving pubs in the UK.  In a number of these cases competition concerns have been considered to arise at the local level where the merger adds to or creates a share of supply (by number of pubs) of 25 per cent or more in any Petty Sessional Division (PSD).  Most recently, in Enterprise Inns Plc's acquisition of The Laurel Pub Group Ltd (see [note 2]), there were a total of 10 PSDs where the merger created or added to a market share of over 25 per cent of pubs.  Enterprise gave undertakings to divest 59 pubs in lieu of reference to the Competition Commission.


Product market

The parties overlap in the operation of pubs.  Consistent with previous cases (see [note 3]), the appropriate frame of reference to adopt when assessing the competitive effects of this merger is considered to be pubs (see [note 4]).

Geographic market

In previous cases involving pubs, the geographic analysis of overlaps for assessing the extent of local competition among pubs has focused on PSDs.  Where a merger creates or increases a market share of 25 per cent or above in any PSD, parties have been required to divest a number of pubs to reduce their market share in any PSD to no more than 25 per cent or (if higher) the pre-merger level.

Despite concerns over the ability for PSDs to accurately capture the geographic scope of competitive constraints on individual pubs (see [note 5]), based on the information available and in the absence of a detailed study into local market conditions, PSD areas are considered to be the best available proxy for the local geographic market.


National Issues

Following the completion of the sale of 253 (see [note 6]) pubs to the joint ventures controlled by Flodrive Real London, the merged entity owns a total of 7396 pubs.  In the past, various sources of PSD data, including that from the Home Office, AC Nielsen and C.G.A Ltd have been used depending on what has been provided by the parties.  In this case, two different data sources have been provided.

According to AC Nielsen data from Magistrates in 1998/99 but updated to 2003, there are 66,000 pubs in the UK.  This would give the combined entity a national share of 11.2 per cent (increment 4.5 per cent).  Using the Experian Bar*Track data, which estimates that there are 60,000 pubs, the parties would have a combined national share of supply of 12.3 per cent (increment 4.9 per cent) (see [note 7]).

Local Issues

Using either the AC Nielson or Experian Bar*Track data discussed above, there are no PSDs in which the parties' combined share of publican full on-licences creates or increases a share of 25 per cent or more.

Barriers to entry and expansion

The main barrier to entry in pub retailing is obtaining a licence to supply alcohol. Changes in the licensing regime are making entry easier at the retail level. Moreover, changes in the ownership structure, discussed below under the vertical issues section have allowed the entry of retail pubs.

Entry on a small scale is considered difficult to sustain. To secure discounts from brewers and wholesalers the new entrant needs to be a significant player or a brewer. Without these discounts the new entrant would find it difficult to compete effectively against existing larger pub chains.

Buyer power

Buyer power on the part of individual consumers is believed to be minimal.


Neither Punch nor Pubmaster has any brewing interests.  Both groups currently have a policy of multi-sourcing and periodic tendering.  Each obtains its beer supplies from a wide range of brewers – national and regional.  Each contract has been entered into on a non-exclusive basis and comes up for renewal by 2008 or earlier.

Buyer Power

The combined beer throughput for the merged entity is estimated at around [690-2,180] kba, or [2-5 per cent] of total UK beer sales and [5-10 per cent]  of on-licensed beer sales in the UK.  Most brewers offer volume related discounts to pub companies.  Thus the merger may be expected to improve the parties' bargaining power and ability to secure a reduction in price paid to the brewer.  However, given the parties' relatively small share of total beer sales, any increase in buyer power as a result of the merger is not considered to be significant.


With one exception, third parties were generally unconcerned by the transaction. In an unsolicited response to the OFT's invitation to comment, one third party considered that PSDs did not necessarily accurately reflect competition and suggested that local competition could be assessed on a 5 mile squared area or through the subdivision of PSDs by parish lines.  Another third party suggested an assessment based on turnover might more accurately indicate the potential for competition concerns.


Following the merger the parties control around 7396 pubs (increment 2968) resulting in a national share of supply in pubs of between 11.2 per cent and 12.3 per cent (increment 4.5 per cent - 4.9 per cent).  There are no PSDs in which the parties' combined share of publican full on licences creates or increases a share of 25 per cent or more.

On this basis, the OFT does not believe that it is or may be the case that the creation of the relevant merger situation has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom for goods or services.  Nor does it believe that there is a credible alternative view that the merger might substantially lessen competition.


This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.


1. [110-140] of these 206 pubs would come from the Pubmistress estate and the remaining [80-120] from the Punch estate.

2. A published version of the OFT's advice to the Secretary of State on this case can be found on the OFT website.

3. For further discussion, refer to the OFT's advice in Enterprise/Laurel.

4. A pub is defined as a full publican on-licence.

5. For further discussion, see Enterprise/Laurel.

6. Of the 253 pubs sold, [140-180] were from the Pubmaster estate and [80-120] from the Punch estate.

7. The first set of data is taken from actual magistrates courts whilst the second set is an amalgam of three different sources of data.  The parties are unable to pinpoint exactly why the difference in the numbers estimated arises.

Published 25 February 2004