Watchdog launches pub industry share dealing probe
May 19 2009 by Iain Laing, The Journal
THE City watchdog has launched an inquiry into possible insider dealing in pub group shares surrounding last week’s controversial report into the pub industry model.
The Financial Services Authority (FSA) is said to be investigating share price movements the day before the launch of the report by MPs, which called for a competition probe amid fears that ties between pub firms and licensees were forcing up prices for drinkers. Shares in some of Britain’s biggest pub companies dived last Tuesday, with Punch Taverns and Enterprise Inns tumbling by 13% and 8% respectively.
A copy of the publication from the Business and Enterprise Select Committee was sent out under embargo on Tuesday to parties including the media, witnesses and the relevant Government department.
The FSA is now understood to be looking into whether Tuesday’s share trading was based on information included in the advance copies of the report. Last week’s findings on the pub sector were damning for so-called “pubcos”, claiming firms were using their position to impose heavy rental burdens, while failing to pass on the full benefit of discounts on beer to tenants.
Beer ties compel tenants to buy drinks from landlords, but are supposed to see tenants benefit in return, with accommodation, cut-price rent and often beer discounts in exchange. Peter Luff, chairman of the committee of MPs, said there should be greater transparency over rent-setting and an independent dispute resolutions system, while he also challenged pubcos to demonstrate the benefits of the beer tie by allowing tenants the opportunity to run their pubs on a free-of-tie basis.
The FSA declined to comment on speculation of an insider dealing inquiry. It has only achieved one criminal conviction of insider dealing since its formation in 2001, although there are several more cases currently in the courts.
Any inquiry into pubco shares could also be made more difficult by the release of disappointing figures from Enterprise the day before the report, which were also impacting shares in the sector.
Enterprise had said it was scrapping its dividend payment to shareholders and reported a £29m drop in profits to £103m for the six months to March 31.
