(Corrects to show Heineken splitting portfolio with investmentpartner Patron; paragraphs 1, 10, 11)
* Heineken, Patron vs Alan McIntosh in $400 mln takeover
* Heineken already has a pub business with good margins
* Suitors have until Jan. 11 to make official bids
By Martinne Geller and Rahul B
Dec 14 (Reuters) - Dutch brewer Heineken and aninvestment partner are in advanced takeover talks with PunchTaverns, Punch said on Wednesday, but face competitionfrom a higher rival bid from one of the British pub company'sfounders.
Shares in Punch, Britain's second-biggest pub operator,jumped as much as 39 percent on Wednesday after it said it hadreceived a "proposal" from Patron Capital Advisers, working withHeineken, about a possible cash offer of 174 pence per share,and "an approach" from Emerald Investment Partners about apossible cash offer at 185 pence per share.
Punch said it was in "advanced discussions" with Patron andHeineken and in "discussions" with Emerald. Officials for Patronand Heineken declined to comment.
Emerald confirmed that it had made a proposal about apossible 185 pence per share offer and said it currently held2.2 percent of Punch's shares.
Emerald's founder, Alan McIntosh, is the former Punch finance director who helped to build up the company through aseries of acquisitions alongside entrepreneur Hugh Osmond.
Heineken's offer values Punch's equity at about 386 millionpounds ($488.95 million) while Emerald's offer would equate to a410 million pound valuation, according to Reuters calculations.
Punch said that both proposals were conditional on therecommendation of its board, among other things, but thatEmerald's also depended on it arranging committed financing anddoing due diligence.
The bidders have until Jan. 11 to make a firm offer or walkaway, according to UK takeover rules, Punch said.
Established in 1997 with a portfolio of pubs from the BassLease Co, Punch expanded through the purchase of Inn BusinessGroup and real estate from Allied Domecq. It listed on theLondon Stock Exchange in 2002 and now has about 3,300 pubs.
MARKET DOMINANCE?
Punch said Heineken would acquire about 1,900 of its pubsfrom Patron immediately after a takeover, with Patron keepingmore than 1,300 sites.
That would give Heineken a total of about 3,000 UK pubs,moving closer to market leader Enterprise Inns, whichhas nearly 4,500 sites.
The UK pub industry has struggled for years with decliningcustomers, due parlty to a UK smoking ban and increasedcompetition from restaurants and supermarkets. There were 50,800pubs in Britain last year, the British Beer and Pub Associationsays, down from 67,800 in 1982.
Punch and its large rivals, which also include Greene King and Mitchells & Butlers, have also been workingto broaden their food and drink offering to appeal to Britons'evolving tastes.
But Punch recently scaled back its portfolio with disposalsthat delivered net proceeds of 234 million pounds in the year toAug. 20 and performance has improved.
Pub operators are also adjusting to new regulations thatgive pub tenants more rights and greater protection when dealingwith large companies that own so-called tied pubs.
Tenants of tied pubs, which account for most of Punch'sportfolio, are obliged to buy beer and other drinks from theirlandlords. This means that Britain has a long history of brewersoperating pubs but the large multinational brewers are generallynot in the pub business.
CUSTOMER CONTACT
Heineken is unusual in that it has an existing portfolio ofabout 1,100 pubs, most bought from Royal Bank of Scotland in 2011. A Punch acquisition would triple the number ofHeineken pubs selling the Dutch group's beers, including Amstel,Sol and Lagunitas alongside Strongbow cider and itsgreen-bottled Heineken lager.
In a presentation last month, Heineken's president of Europelauded its pub business for providing direct contact withconsumers, allowing the company to test and build new productsquickly while giving it an understanding of how customers andpubs work.
"You actually get a direct, a very direct and a verydifferent contact with your consumer," Stefan Orlowsky said,adding that the pub business is very attractive from a marginperspective.
Jefferies said that Heineken's approach could be viewed as adefensive move aimed at protecting margins in Britain, whichaccounts for about 6 percent of group profit.
Other consumer goods companies have taken similar steps intothe retail sphere, with Nestle running Nespresso coffeeboutiques, Estee Lauder operating MAC cosmetic stores andDiageo testing Johnnie Walker Houses.
Patron Capital, with 3.4 billion euros ($3.62 billion) ofcapital across several funds and investments, focuses largely onreal estate.
Punch shares were up 38 percent at 178 pence by the close,while Heineken shares closed flat.
Punch is being advised by Goldman Sachs.
News of the bid approaches was first reported by Sky News.($1 = 0.7895 pounds) (Additional reporting by Vidya Loganathan in Bengaluru andPhilip Blenkinsop in Brussels; Editing by Jane Merriman andDavid Goodman)
