Barclays build InterContinental stake

Bid speculation mounts as billionaire owners of Ritz increase shareholding in rival hotel group
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The billionaire Barclay brothers, who own the Ritz and the Daily Telegraph, have built up a 5 per cent stake in InterContinental, fuelling speculation in the City they are about to make a bid.

Shares in the world's largest hotels group surged to a record high of £13.47 in early trading yesterday on the back of the prospect of a £5bn bidding war. The group finished the day 8p higher at £13.08 giving the company a market value of £4.6bn.

A spokesman for InterContinental, which also operates Holiday Inn and Crowne Plaza hotels, said Ellerman Corp, an investment vehicle owned by David and Frederick Barclay, had already built up a significant stake but this was under the 3 per cent radar. Ellerman paid £200m to double its stake.

"We met with them earlier this month as we would with any shareholder but we are not in ongoing discussions," the InterContinental spokesman said.

Shares in the group have been soaring for months as rumours swirl the City that a private-equity consortium is about to make a move. The stock has increased 30 per cent in the past three months and has more than trebled since IHG was demerged from the Six Continents group four years ago. On Friday, its shares closed up 35p at £13, boosted by news that Morgan Stanley Real Estate agreed to buy CNL Hotels, based in Orlando, for £2.1bn. Analysts said if the Barclay brothers move it would be with a trade partner or as part of private equity consortium. Starwood Capital is among those said to be interested.

"It would be difficult to achieve much of a premium on the price as the group are just coming out of refurbishment," one said.

"There is still a strong case for a buyer though. New hotels in the pipeline will increase the number of rooms by a quarter and this is an asset-light business and they could be looking to grow it further."

However, David Pope, an analyst at Brewin Dolphin, said the Barclay brothers were not known as particularly aggressive in corporate activity and tend to buy from private groups.

"The chance of them wanting to take a significant listed plc is unlikely," he said.

Mr Pope believes a private equity group could split the company into a property company and an operating company. "This is not so far from what the management are doing at the moment," he said.

IHG has sold off chunks of its property over the past three years. Tim Helliwell, the head of hotel finance at Barclays bank, said hotels had become "a very attractive asset class" with prices shooting up 70 per cent in the past seven years and doubling in the past three years.

"There has been a realisation since the millennium that hotels are more attractive than previously thought," he said. "Hotels survived 9/11 and a recession in the US and cash flows have been pretty resilient." However, he said it was difficult to see how much further prices could go.

InterContinental's landmark hotel on Park Lane reopened at the end of last year following a £76m refurbishment. The group owns, manages or franchise 3,680 hotels and 544,000 rooms in almost 100 countries.