Heineken and Patron agree to buy, break up UK's Punch Taverns

* To pay 180 pence a share, 40 pct above Tuesday's close

* Punch has received a higher rival proposal, but no bid

* Punch shares jump to 2-year high on hopes of bidding war (Adds Punch chairman comments)

By Philip Blenkinsop and Martinne Geller

Dec (Shanghai: 600875.SS - news) 15 (Reuters) - Heineken NV (LSE: 0O26.L - news) and investment partner Patron Capital have struck a 403 million pound ($500 million) deal to buy and break up Punch Taverns (Other OTC: PCTVF - news) , in a move that would make the Dutch brewer Britain's third-biggest pubs group.

The companies said on Thursday Punch shareholders would receive 180 pence per share in cash, more than 40 percent above Punch's closing price on Tuesday, a day before a potential deal was first reported.

However, Punch shares leapt to a 2-year high of 198.75 pence, suggesting investors are hopeful of a higher offer.

That is because Punch said on Wednesday it had received two takeover approaches, one from Heineken and Patron at 174 pence per share, and a higher 185 pence-per-share proposal from Emerald Investment Partners, founded by Alan McIntosh, the pub group's former finance director.

Heineken and Patron agreed to offer 180 pence, winning over Punch's management and board of directors as well as Punch's top three shareholders representing 52.3 percent of its shares. Punch said their commitment would lapse if there was a rival offer of 200 pence a share or more.

Heineken and Patron referred to their offer as final, but said it could be increased in the event of a competing bid.

As of Thursday afternoon, Emerald had made no further approaches, Punch Chairman Stephen Billingham told Reuters.

"They are continuing to ask questions, which they have a right to do," Billingham said. "But we're not having any discussions with them about anything."

Emerald, whose proposal was conditional on financing and ongoing due diligence, declined to comment on its intentions.

Including Punch's debt of about 1.3 billion pounds, the deal has an enterprise value of roughly 1.7 billion pounds.

Shareholders will vote on the proposal in February.

LONG TIME COMING

Heineken, maker of Amstel, Sol (LSE: 0NJP.L - news) , and tequila-flavoured Desperados alongside Strongbow cider and its green-bottled Heineken lager, has been in talks with Punch for about a year, Billingham said.

Patron, a real estate investor, separately approached Punch about nine months ago and agreed to team up with Heineken in the summer, he said. It took time, he said, to agree a price and structure for the complex deal that will see Punch broken up after a takeover set to close next year.

Heineken will pay 305 million pounds to buy the majority of Punch's pubs, nearly tripling its existing UK estate.

The Dutch firm is unusual among major brewers in owning pubs, having first inherited some from its 2008 deal with Scottish & Newcastle and then buying more from Royal Bank of Scotland in 2011.

The company has said as recently as last month that pubs are an attractive asset as they provide direct contact with consumers, help to test new products and offer better margins in the UK than selling beer or cider.

Heineken said the deal would add to earnings in the first full year after its closing. HSBC analyst Anthony Bucalo said it was a positive, but small, move for Heineken.

"It's an important Heineken market, but not one that moves the needle globally," he said. Europe as a whole made up just over a third of Heineken's profit last year.

CAPITAL BOOST

Punch is currently Britain's second-biggest pubs group, but its estate will be split, with Heineken taking 1,900 pubs and real estate investor Patron more than 1,300 sites.

The Dutch firm said it would refurbish the acquired pubs and ensure they could sell food. It expects to benefit from economies of scale and increased sales of its beer and cider.

Punch's Billingham said pubs tend to generate more business once they've been updated.

"This is an opportunity for two new sources of capital coming into the pub market, which is good news for drinkers in the UK," he said.

Heineken is the beer market leader in Britain and Europe, but has made efforts to increase its emerging market presence in recent years with purchases in Mexico and Asia. It has recently been dwarfed in size by Anheuser-Busch InBev's $100 billion takeover of SABMiller (Other OTC: SBMRY - news) .

Punch is being advised by Goldman Sachs (NYSE: GS-PB - news) , while Heineken is being advised by Nomura and DLA Piper.

($1 = 0.8057 pounds) (Additional reporting by Rahul B in Bengaluru; Editing by Jason Neely and Mark Potter)