Cash call tipped after Forte buy

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The Independent Online
FORTE may have to tap shareholders for cash to fund its successful bid for the Meridien hotel chain, according to City leisure analysts.

Shares in the company fell 7p to 221p following the announcement that it had secured agreement to buy Air France's 57 per cent stake in the 54-strong Meridien hotel chain for pounds 230m - pounds 24m more than the rival offer by Accor, the French leisure group.

Analysts' fears about a cash call were raised because Forte did not spell out how it would fund the deal. The group's last figures showed it had debts of pounds 1.1bn, equal to 45 per cent of shareholders' funds. Meridien carries pounds 58m of debts.

Analysts also said the deal would dilute Forte's earnings by at least 5 per cent in the first year of owning Meridien, and possibly more if rationalisation costs were included.

'I believe they will bridge the funding of the deal, and hold over the possibility of a cash call until the share price is stronger,' an analyst said.

The consensus is that Forte will use pounds 200m of short-term debt. Next year it could sell some of its remaining pounds 55m-worth of shares in its former Alpha Airports subsidiary. It could also reap pounds 100m from the expected flotation of Gardner Merchant, the contract catering business it sold to management.

Despite fears about a cash call, analysts accepted Forte's commercial arguments for buying Meridien. It takes the group into the Pacific rim and enhances its presence in North America.

The purchase also doubles its luxury hotel portfolio to 100 sites, with the number of rooms rising from 9,000 to more than 26,000.

Meridien, which only broke even last year, will also benefit from Forte's marketing power.