Granada details pounds 100m savings
Forte battle: Bidder prepares to be specific about its promises as share registers reveal cross-holdings
Thursday 04 January 1996
and JOHN SHEPHERD
Granada is poised to bury Forte's management in an avalanche of detailed promises on how it intends to run the hotels and restaurant company, as part of a last-ditch effort to win its pounds 3.3bn hostile bid.
The breakdown of Granada's promised pounds 100m in savings shows how Granada intends to achieve half that amount through rebranding, higher room rates and reworked restaurant menus. The rest will come from head-office savings and centralised purchasing.
The figures, to be released by Granada next week, are likely to be accompanied by a sweetened offer - although analysts differ on how much higher Granada will go. Charles Allen, Granada's chief operating officer, declined to comment on the breakdown, saying it would be unveiled next Monday or Tuesday.
The fresh details emerged as the powerful Council of Forte, which owns less than 1 per cent of Forte's shares but controls 50 per cent of the votes, met with advisers from both sides yesterday. A spokesman for the council said: "No conclusions have been reached and we are continuing discussions with both parties."
Sir Rocco Forte with Keith Hamill, finance director, and Richard Power, public affairs director who was promoted to the main board on Tuesday, yesterday hosted a two-hour briefing for 50 leisure analysts from stockbroking firms and other leading City institutions.
Forte told analysts that occupancy levels in hotels in all of Forte's main brands - Exclusive, Meridien, Posthouse and Heritage - are high and in many instances are well above the market average.
To support its controversial claim of pounds 100m in annual savings, Granada has prepared a segment-by-segment analysis of Forte's main businesses, detailing precisely how much will be spent refurbishing the Little Chef and Happy Eater restaurants, which Forte has agreed to sell to Whitbread as part of its defence strategy.
Just under 100 Little Chef sites are earmarked for transformation into fast-food outlets, while another 17 will get immediate refurbishment. The company intends to spend about pounds 250,000 on each new fast-food outlet, and about pounds 50,000 on the remaining sites. Some of the 420 Little Chef and Happy Eaters could be sold off.
The restaurant business is also to get "re-engineered menus", with old- fashioned items dropped, new products introduced and more expensive, lower- margin ingredients removed. Granada expects to be able to improve margins by 3 percentage points through these measures. On the hotels front, the rebranding of the Posthouse and Crest properties into a single upper mid- market chain will allow higher room rates, Granada will argue.
Travelodge rates will also be raised by at least pounds 5 a night, increasing to about pounds 10 more a night for business travellers. Forte currently charges a flat pounds 34.50 at many of its budget hotels.
By effectively doing away with Forte's head office, and reducing the number of operating units from 12 to just three, it will argue that it can save at least pounds 24m a year, the amount by which Forte claims it can enhance profits under its own savings plan.
If the Granada bid succeeds, total food and beverage supplies would cost about pounds 320m a year, made up of pounds 180m for the Granada operations and pounds 150m for Forte (not counting the motorway services business that Granada intends to sell).
Granada will argue that it could achieve discounts of up to 10 per cent on its bulk purchases by dealing with fewer suppliers and limiting the independence of line managers to reach their own supply deals. The savings could reach as much as pounds 25m a year, Granada will claim.
There were heavy dealings in Forte and Granada shares yesterday. One dealer said Americans were buying shares in Granada, up 7.5p to 649.5p, in the belief that its bid will fail. Forte shares closed unchanged at 343p.
The Forte stakes
Top 10 shareholders
Institution % held
Mercury Asset Mgt 13.23
Capital Group 2.76
Legal & General 2.29
Standard Life 2.28
Robert Fleming 1.78
Source: shareholder register
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