* Offer is at 38% premium to Ei's share price
* Deal to add 4,000 pubs to Stonegate's chain
* Ei says rejected initial bids from Stonegate(Adds Ei CEO comments, shares, details)
By Tanishaa Nadkar and Noor Zainab Hussain
July 18 (Reuters) - Slug and Lettuce pub chain ownerStonegate on Thursday said it agreed to buy larger rival EiGroup for 1.27 billion pounds ($1.58 billion), takingcontrol of some 4,000 additional pubs to become Britain'sbiggest pub operator.
The deal seals a major turnaround for Ei, which fetched aprice tag of 285 pence per share - more than tenfold its valuein 2012, when it traded as low as 27 pence a share.
The offer represents a 38% premium to Ei's closing price onWednesday, and its shares surged almost 40% in morning trade.
Britain's hospitality sector has been rocked by the closureof a number of major restaurant chains this year, while puboperators battle the cost of higher minimum wages as well as amove away from pub drinking by younger Britons.
Analysts at Peel Hunt said the deal would allow Stonegate toat least triple its earnings before interest, taxes, debt andamortisation and provide a substantial pool of pubs to sell offor convert from leased to managed.
Stonegate has a strong track record for acquiring,integrating and converting pubs, Peel Hunt said.
Stonegate, which is owned by private equity fund TDR, isbest known for its Walkabout, Yates and Slug and Lettuce chains.In contrast, Ei runs a disparate range of pubs, often inpartnership with landlords and small operators, who tailor theirmenus and entertainment to cater to local customers.
INITIAL BIDS REJECTED
Ei Chief Executive Officer Simon Townsend told Reuters thatStonegate had made an initial unsolicited approach to Ei's boarda few months ago, which was rejected as inadequate andsubsequent revisions were also turned down.
"There came a point where we were able to achieve a pricewhich the board felt was worthy of engagement and has led us tothe place where we are today," Townsend said.
Shares in Ei rivals Mitchells & Butlers, Marston's, Greene King and J D Wetherspoon allrose on news of the deal.
Ei, which traces its roots back to 1991, has grown throughseveral acquisitions, including that of former Whitbread pubs.It employs more than 1,800 people as a group along withthousands more in the pubs it owns or operates.
Stonegate, which operates 765 pubs in Britain, will assumedebt of around 1.7 billion pounds as part of the deal.
Ei will be delisted after the deal and there may be a smallnumber of job cuts, Townsend said.
Ei directors were advised by Deutsche Bank andRothschild & Co while Barclays, Nomura and GoldmanSachs acted as financial advisers to Stonegate.($1 = 0.8036 pounds)
(Reporting by Tanishaa Nadkar in Bengaluru;Editing by Deepa Babington)