Granada in £125m motorway takeover

Granada, the television and leisure company, last night agreed a takeover of Pavilion for £125m, making it the UK's largest motorway service operator and knocking Forte from pole position.

Granada, through its subsidiary Granada Hospitality, already operates 19 service areas alongside motorways and a further eight sites along main trunk roads.

"This deal gives us some very good sites, at a good price," Charles Allen, chairman of Granada Leisure and Services, said. "You're looking at perhaps £20m-£30m for newly built sites and we are getting eight operations for £125m."

The purchase will be financed out of cash flow, and includes £76.3m in equity and assumpton of £48.7m in Pavilion debts.

Pavilion, which has eight motorway service areas and one trunk road site, was bought by its managers from Rank Organisation in 1991, with the backing of the venture capital companies Candover and CINVen. The high costs of developing new service sites persuaded the company's backers to launch an auction, in which Granada soon emerged as a favourite.

The deal gives Granada 27 motorway sites. Other interested buyers for Pavilion had included Forte, the hotels group, which was the UK's leading motorway services operator with 21 sites. But fears of a possible Monopolies and Mergers Commission reference dissuaded the company from pursuing the negotiations.

Granada's existing sites are mostly in the south of England, while Pavilion is concentrated in the North-west. Some overlap exists along the M4, and Granada is expected to sell one or two sites to avoid any problems with the MMC.

Granada had been looking to expand its services operations, but was deterred by the high cost of developing greenfield sites. There are currently 18 planning applications for motorway service areas pending in the UK. Granada recently opened a new site in Reading but is not planning any further greenfield developments.

The company is continuing to expand its licensing arrangement with Burger King, the fast-food chain owned by Grand Metropolitan, which operates restaurants in all eight of Granada's motorway service areas.Burger King outlets will be opened in Granada's trunk road sites and at Pavilion operations.