Landlord's threat to Punch float

LES BROOKER isn't famous. He runs the White Horse pub in the Hambrook area of Bristol with his wife Maxine. He earns about £20,000 a year and drives a Vauxhall Frontera.

Hugh Osmond definitely is famous. He made his name with the flotation of PizzaExpress in 1993 when the issue was 10 times oversubscribed. With the shares soaring from 40p to a peak of 950p five years later, he is now a multimillionaire. He drives a red Ferrari, lives in a luxurious house in St John's Wood, north London, and indulges a penchant for gameshooting and skiing holidays.

But if Hugh Osmond hasn't been too interested in Les Brooker, he soon will be. For Brooker, 44, has just scored a little-reported legal victory that could deal a huge blow to Osmond's biggest and most ambitious stock market adventure to date - the flotation next year of his pubs group, Punch.

Osmond won his financial spurs with PizzaExpress. His audacious victory over Whitbread in the struggle for Allied Domecq's pubs in 1999 further burnished his reputation as a man who, dressed in chinos, could outmanoeuvre the pompous suits of the City.

Now Osmond's fans are being offered the prospect of not one flotation, but two. Punch, Britain's second-largest pub operator, has split itself in two. Punch Pub Company, run by Stephen Lambert, has 4,200 leased pubs, while Punch Retail, headed by Karen Jones, has 1,000 managed pubs.

The Punch Pub Company flotation is where Les Brooker comes in. The company has borrowed £1.5bn - money that banks and investors were happy to lend as Punch has the comfort of raking in a guaranteed income, year after year, from its tenanted pubs.

Now, that guarantee is looking less than cast-iron. Many tenanted pubs have 'upwards only' rent reviews. The agreement between owner and publican explicitly says rents will never fall, only increase.

Unique Pub Company, part of Japanese investment bank Nomura and owner of Brooker's White Horse pub, tried to up the annual rent from £20,000 to £24,000.

Brooker took Unique to court to challenge the increase - and won. Unique was forced to cut its rent to £16,000 for the next five years.

The Brooker v. Unique case could have huge consequences for owners of tenanted pubs in general, and Punch Pub Company in particular.

Pub industry consultant Brian Jacobs said: 'The impact of lower rents on the bigger pub companies such as Punch means it is conceivable that one of them is going to come unstuck. Punch raised more than £1bn against its estate based on the fact that rents would be going up, which is not the case any more.'

Brooker said: 'We never expected to win, but it is going to save us a lot of money.' More ominously for the likes of Punch, he added: 'We've been swamped with calls from people wanting to do the same.'

Hugh Osmond remains disdainfully unconcerned. 'The whole thing is complete piffle,' he said. 'A local judge has gone off on a frolic. But it doesn't set a precedent and is just an irresponsible, daft judgment in a junior court.

'If you were to ban upwards-only rent reviews it would crater the entire UK property market.' Osmond is taking a back seat in the run-up to the flotation of the leased pub business, which is expected to have a value, excluding £1.6bn debt, of between £500m and £600m, while the managed estate, likely to be floated later in the year, could fetch up to £600m.

Osmond has poached Giles Thorley, head of Unique Pub Company, to be executive chairman of Punch Pub Company, prompting Nomura boss Guy Hands to call Punch a 'second-rate pub company'.

There are also mutterings in the City that Punch's stock market debut may just be the wrong deal at the wrong time.

Mark McQuater of the Barracuda pub group has suggested that 20% of pubs in the sector are not viable. McQuater said: 'I don't see much stock market appetite for any pub flotations next year.'

Nigel Popham, leisure analyst at stockbroker Teather & Greenwood, said: 'Investors don't seem to be that interested.'

But Osmond remains bullish, saying: 'The market has bucketloads of liquidity and nowhere to put it. Leased pubs are seen as a reliable source of earnings, a domestic company and a safe haven for investors.

'We're not cyclical, and our growth record is fantastic. If the sentiment isn't right then obviously there's no point in pushing water uphill, but now is a very good time for pub companies.'