Forte spurns Granada's pounds 3.1bn opening shot in takeover battle

MATHEW HORSMAN,

JOHN SHEPHERD

and DAVID HELLIER

A vicious and acrimonious takeover battle was sparked last night as Granada's audacious pounds 3.1bn hostile bid for Forte was given short shrift by the board, which said that it "totally fails to recognise the value of the company".

That view was echoed in the City, where analysts said the offer was only an opening shot. "This is not a knockout offer," said one leading leisure analyst. "The company is worth considerably more." Analysts said the chances of a counter offer to Granada's bid were remote.

The battle by two of the country's largest leisure companies promises to be drawn-out and acrimonious. At stake is control of Forte's 900 hotels - including Grosvenor House in London, the George V in Paris and the Ritz in Madrid - and its restaurants and motorway service stations.

Shares in Granada dropped 48p to 649p, while those in Forte rose to 347.5p yesterday, as the market weighed the details. The mixed shares and cash offer valued Forte at pounds 3.4bn at the start of trading yesterday, but that had dropped by pounds 300m to pounds 3.1bn by close of dealings.

If successful, the bid will push Granada's gearing to 130 per cent, and the credit agency IBCA put the company's long-term rating of A on watch, "with negative implications''.

Granada, which runs two independent television companies, a rentals division for televisions, computers and other household equipment, and catering services, is offering four Granada shares plus pounds 23.25 for every 15 Forte shares. There is also a full cash alternative of 321.7p a share.

Gerry Robinson, Granada's chairman-designate, said yesterday that Forte had been undermanaged and had returned poor value to shareholders. He vowed to restructure the company's sprawling hotels and catering operations, selling off pounds 500m worth of assets and improving profit margins. "We've tracked this opportunity for several years," Mr Robinson said. "We believe we are financially and managerially ready for it."

However, Sir Rocco Forte said he was "very confident" of beating off the bid. "He [Mr Robinson] is two years too late in making a bid. And he is two years too late in making the remarks he made about the company."

Mr Robinson said his company intended to sell off bits of the Forte empire if the bid succeeds. The 68 per cent restricted-voting stake in the luxury Savoy hotels group would be put up for sale. Also earmarked for disposal are the Lillywhites sporting wear retail operation and a few of Forte's "trophy" hotels.

It intends to rebrand the remaining hotels, concentrating on building the Meridien chain, which Forte bought last year, into its main international operation, probably by folding in the Forte Grand chain.

Ultimately, Granada hopes to create two distinct hotel products at the higher and lower ends of the mid-market. Forte is the market leader in the fast-expanding budget hotel market through its Travelodge chain.

Also lined up for disposal are Forte's 22 motorway service sites, which Mr Robinson conceded would pose insurmountable competition hurdles. Granada operates 27 roadside service sites in the UK.

Granada has grown sharply in the past four years, with operating profits rising from pounds 88m in 1991 to pounds 388m this year. In the same period, Forte has seen profits tread water, drifting from pounds 289m in 1991 to pounds 258m this year, and has had to cut dividend payments.

Full-year results released yesterday by Granada showed that pre-tax profits climbed 32 per cent to pounds 351.2m, on turnover up 14 per cent at pounds 2.4bn. The dividend total was lifted from 10p to 11.75p per share.

Mr Robinson rejected suggestions that the bid had been pitched too low. "The City always wants more," he said. "That's par for the course. We've put a good bid forward, and we will have to wait for three or four days to see whether we have a convincing case."

Analysts said yesterday that the offer might have to be raised to 400p a share, or nearly pounds 3.9bn, to secure victory.

Mr Robinson also rejected criticism that there was no strategic fit between the two companies. "People like to make these businesses complicated, which they are not. Hotels, like catering and television and any other business, are about unit management," he said. "We have proved that we can manage well."

There were suggestions yesterday that Granada did not necessarily have the management depth to run an international hotels company. One leisure analyst said: "This business requires not just an understanding of pricing and filling rooms but also a good understanding of the international market."

A spokesman for Forte said: "The logic of a fit between us [Granada and Forte] does not seem to stack up too well."

However, others accepted that Mr Robinson, along with his chief operating officer Charles Allen, had the relevant experience, citing the improving fortunes at both Sutcliffe, the catering business bought two years ago, and at Pavilion, the motorway services company purchased in April.

At its current level, the offer would be worth pounds 250m to the Forte family, which owns just under 8 per cent of the company. The family has a shareholding of around 75 million shares - between 7 and 8 per cent in the company - which are owned directly by Sir Rocco Forte, his sister Olga Polizzi, and their father, Lord Forte, and indirectly through a number of trusts.

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