Greenalls' pounds 370m pubs sell-off marks fresh round in strategy

GREENALLS, the leisure group, yesterday confirmed the sale of its tenanted pub estate to Nomura for pounds 370m and said it would return pounds 100m of the proceeds to shareholders via a special dividend of 34p per share.

The deal involves the 1,241 pubs included in Greenalls' Inns Partnership Group and takes Nomura's pub estate to around 5,200. The pubs include Greenalls' core estate in the north-west of England as well as those acquired from Devenish in 1993 and the Boddingtons pub group three years later. About 80 pubs are not included but 60 of these will be sold separately.

The sell-off marks a new stage in Greenalls' gradual shift away from its roots in brewing and pubs. It pulled out of brewing in 1990 and the group is now focused on hotels, which include the De Vere and Village brands; city centre bars such as Henry Cafe Bars; and its new Greens health and fitness clubs , the first of which will be opened next year.

Reporting flat profits of pounds 158m for the year to September, Lord Daresbury, Greenalls' chief executive, said that the pub business continued to be affected by the more cautious consumer environment, but the branded managed pubs were proving more resilient.

Even so, industry analysts are divided as to the wisdom of Greenalls' strategy. The deal will be dilutive and there are also fears that having over-paid for both Devenish and Boddingtons in the past, Greenalls has now pulled out of its two previously core activities and is expanding headlong into sectors dominated by others.

Though the De Vere hotels brand is strong, there are questions over the expansion into health and fitness where Whitbread, with its David Lloyd Centres and First Leisure, is already more established. However, selling the tenancies when demand is strong has been welcomed. "It looks like a good move but what we really want to see is this group's woeful return on capital improve," one analyst said.

Greenalls shares, which closed 7.5p lower at 343.5p yesterday, have under- performed the market by 22 per cent over the last year and 47 per cent over the last five. Just over a year ago, potential bidders were looking at the group including Whitbread and venture capital groups.

Assuming full year profits of pounds 155m this year the shares trade on a lowly forward rating of 9. A bidder may yet emerge. Without one it looks like a long slog.