De Vere agrees £723m AHG deal despite last-minute Permira bid

Malmaison and Hotel du Vin chief Richard Balfour-Lynn has agreed a £723.5m deal with De Vere, the hotel and leisure group, which rebuffed a last-minute £736m approach from the private equity firm Permira.

Mr Balfour-Lynn, the chief executive of the property group Marylebone Warwick Balfour, appeared to have won the hotly contested auction on Saturday with an offer of 825p a share through his investment vehicle Alternative Hotels Group. The offer is 10 per cent above the price on 22 March, the last day before De Vere said it was in takeover talks.

The ball is now in Permira's court after it saw its indicative proposal of 840p a share, tabled on Friday night, rejected. It must put a formal counter-offer on the table to come up trumps. AHG has received irrevocable undertakings from holders of 20.1 per cent of De Vere's shares, including the two largest investors, non-executive director Stephen Morgan and property tycoon Jack Petchey, as well as Lord Daresbury, who recently stepped down as chairman and is a descendant of the company's founder.

De Vere's board said it would unanimously recommend the offer to its shareholders once it has been cleared by the Pensions Regulator. AHG pledged to pay off the company's £39.2m pension deficit.David Richardson, De Vere's chairman, said: "The board have received one offer, and we think it's a fair and reasonable price... Do you take a firm offer or do you hold out and hope that a better offer will come along?" Carl Leaver, the chief executive, added: "Certainty is absolutely critical in this situation."

De Vere attracted interest from other suitors, including Starwood Capital, NH Hoteles of Spain and Jamie Ritblat's Delancey property firm. AHG was created last year by Mr Balfour-Lynn with four other directors of his property firm and Bank of Scotland, and bought Rentokil Initial's conference venues business for £325m. Mr Balfour-Lynn said: "We are now trying to extend into weekend leisure." He wants to sell De Vere's Greens health club business but hold on to the G&J Greenall spirits unit.

AHG was a late entrant to the UBS-run auction while Permira has been talking to De Vere on and off for three months, and put forward various prices ranging from 560p to 840p. Last week it hastily raised its bid from 810p to 840p after it got wind of AHG's offer, but De Vere thought Permira's proposal was too conditional. The private equity group has backing from Royal Bank of Scotland, which owns the luxury Principal Hotels chain, and wants to combine them with De Vere's 35 hotels.

If the AHG deal goes ahead, Mr Morgan will receive £92m for his 13.2 per cent stake while Mr Petchey will get £34m for his investment.