Punch pull-out sends City reeling

INVESTORS and venture capitalists were reeling at the shock last-minute decision of Punch Taverns to pull its £2bn flotation. Fingers were immediately being pointed at Merrill Lynch, the bank's adviser, for pricing the offer too greedily and potentially blowing future floats out of the water.

There had been concerns, particularly after reports on Wednesday about high prices being paid by landlords for beer supplies, that the business was being overvalued.

Merrill said the float of venture capital-backed Punch, headed by Giles Thorley, was dropped not because there were too few investors on board, but due to worries that the shares would slump as they started trading.

The move sent shock waves through the venture capital community, which has seen flotations as the great hope after a dismal period for deals. One said: 'Investment banks are very short of fees after this long drought of deals and have hyped the IPO market too much, too soon.'

Two other major IPOs backed by venture capitalists, Spectel in Ireland and LM Glasfiber in Denmark, have been pulled recently. However, Brian Larcombe, chief executive of 3i, which is due to float Aberdeen oil-industry operator John Wood Group in the coming weeks, said the Punch decision would not kill off IPOs. 'The appetite for the right companies is still there,' he said.

The crop of would-be summer flotations worth billions of pounds has already been spooked by the performance of music and books retailer HMV. The shares floated at 192p last week and are now trading at a 10% discount.

Three more floats totalling more than £2.5bn are in the pipeline, headed by the £1bn offering of bookmaker William Hill. John Wood Group aims to start trading on the market within the next fortnight with a value of more than £900m, while Intertek Testing Services is being floated by its venture capital backers at about £660m with dealings expected to begin next week.

Equally worrying for the expected floats of DIY groups Focus Wickes, worth up to £1.6bn, and Homebase, rated at around £1bn, is market leader Kingfisher's decision to call for £2bn of new money from the market to fund its Castorama buyout.

Others scheduled include the £3bn float of BT's old Yellow Pages business Yell, and the spin-out of Burberry's from GUS, worth up to £1.5bn.