Slug and Lettuce owner Stonegate Pub Company has agreed to buy Britain's largest pub owner Ei for £1.27 billion, taking on the company's more than 4,000 pubs in a big expansion of its existing network.
Shares in Ei rose more than 40% to their highest in more than a decade after Stonegate offered 285 pence in cash for each Ei share.
The deal, recommended by Ei's board, represents a premium of more than 38% over yesterday's close.
Ei's proposed buyout comes as UK pub operators and restaurant chains have been battling increased costs due to a minimum wage hike, higher property prices and power bills as well as a move away from pub drinking by younger Britons.
Ei last year appointed Rothschild & Co to explore options including a full or partial sale of its commercial properties business. In January, Ei agreed to sell 370 commercial properties for £348m.
The Stonegate deal values Ei, formerly known as Enterprise Inns, at £2.97 billion, including debt.
Ei, which traces its roots back to 1991, has become Britain's largest pub owner through several acquisitions, including buying former Whitbread pubs. It employs more than 1,800 people.
The company's properties are mainly run as leased and tenanted pubs, with total property assets valued at £3.6 billion according to its website.
Ei group Chairman Robert Walker said the commercial benefits of combining the companies was compelling.
"This is a combination it (Ei's board) can recommend with confidence to shareholders and stakeholders alike," he said.
Stonegate, which has an estate of more than 765 operating outlets, began trading in November 2010 after buying 333 pubs from Mitchells & Butlers.
It has since grown in size and scale through a series of acquisitions.
