Friday Letter Tapas for the masses

Given its recent form, The Blackstone Group is not the firm to pick a fight with. During its last high-profile skirmish in the property world, Schwarzman and Co. brushed aside the combined might of Vornado Realty Trust, Starwood Capital and Walton Street to buy Equity Office Properties for $39 billion, the largest private equity real estate deal ever. 

So it comes as a bit of a surprise that Robert Tchenguiz, a London-based Iranian-born private investor, has seemingly managed to outgun the biggest gun of them all.

In a fiercely contested auction, Tchenguiz, who runs property investment firm R20, appeared to gain the upper hand this week in the battle for UK restaurant chain La Tasca. In the space of just a few days, he has managed to turn Blackstone’s offer, via its portfolio company Tragus, to dust. Tragus’ first bid was pitched at 185 pence a share, which was later trumped by Tchenguiz and his co-investors, who lobbed in an offer of 188 pence per share. The next day, March 30, Tragus upped its bid to 192 pence, before R20 responded earlier this week with a seemingly knock-out bid of 200 pence per share, valuing La Tasca at approximately £123 million, including debt. Yesterday, Tragus said it would not bid any higher, effectively putting an end to the contest.

So why would Tchenguiz pick a fight with Blackstone in the first place? The answer is surely in the prize: La Tasca, a Spanish-themed tapas restaurant with 73 properties, could potentially make a nice addition to another Tchenguiz asset, Laurel Pub Company, a move many observers predict is in the works.

Though Tchenguiz has yet to publicly explain his rationale, the move by pub investors towards food-led operations is clear. For one thing, Brits are changing their eating and drinking patterns, looking for more than just a branded high street pub or a dull old traditional boozer. Instead, they are inclined to prefer a more modern approach combining nice décor, a range of wines and yes, even food.

The impending smoking ban in England is another factor, pushing pub operators even further away from “wet-led” offerings on the assumption that traditional pubs will lose some of their appeal. Adding food to the menu is one way to boost revenues.

For its part, Blackstone has been busy in the restaurant arena. The New York-based firm bought Tragus in December 2006 for £267 million, giving it 155 sites under the Café Rouge and Bella Italia brands.

At the time, the firm said: “Blackstone and management believe the UK casual dining sector is in its early stages of growth as UK consumers’ propensity to eat outside of the home is increasing, and high quality, consistent casual dining formats are under-penetrated in the market.”

Both Blackstone and Tchenguiz, among the smartest of investors, rarely get the big trends wrong. Following their bidding war for La Tasca, the share prices of other publicly traded UK restaurant chains shot up in anticipation of possible takeovers in the sector. Blackstone, Tchenguiz and their competitors will surely be keeping an eye on the menu.