Holiday Inn deal gives Bass 36% of largest US hotelier

Bass has sold 47 Holiday Inns and 14 management contracts to Bristol Hotel, a Dallas-based hotelier, in a deal that gives the British brewer a 36 per cent stake in what will be North America's largest owner-operator of full-service hotels.

As well as the share stake, Bass will receive $91m (pounds 55m) in cash from Bristol, which is also paying down $300m of Bass's debt, putting a total value of $659m on the hotels. Sir Ian Prosser, Bass chairman, said the deal was in line with its strategy of expanding its Holiday Inn franchise and withdrawing from the direct ownership of hotel properties.

Under the Holiday Inn franchise system hoteliers, who retain management and ownership of the hotels, pay a signing-on fee to join and a percentage of annual sales for the computer reservation system and marketing.

Holiday Inn Worldwide operates or franchises more than 2,200 hotels and 380,000 guest rooms in around 60 countries. It is the world's largest single hotel brand.

Bass said it would appoint two directors to the board of Bristol and Holiday Inn would continue to own and manage its Crowne Plaza hotels in North America.

The transaction more than doubles the size of Bristol. Formerly called the Harvey Hotel Company, it owns and operates 39 primarily full-service hotels in seven states with a total of 10,187 rooms. Founded in 1981, the company employs more than 4,500 staff.

The 61 hotels transferred, which have a book value of $638m, generated profits of $69m in the financial year to 30 September after payment of franchise fees. Bristol will spend $150m on the properties over the next three years. Bass said the deal would have no significant effect on its earnings.

Bass said it was in talks with Bristol over the possible sale of these Holiday Inn hotels in North America last week.

Bass is putting Holiday Inn through a modernisation programme in an attempt to bring the 43-year-old chain up to date. The programme requires all hotels that have not been upgraded since they joined the system prior to 1989 to modernise or leave.

In the year to September, Holiday Inn Worldwide reported a 15.4 per cent rise in operating profit with strongest growth coming from Europe, the Middle East and Africa. During the year the Holiday Inn chain grew from 2,080 hotels to 2,249.

The disposal of most of its American managed hotels is Bass's first corporate move since its attempted bid for Carlsberg-Tetley was put on ice by Ian Lang, President of the Board of Trade, who referred the pounds 200m deal to the Monopolies and Mergers Commission. The deal would have returned Bass to its position as Britain's biggest brewer.