InterContinental and M&B fall on debut

Shares in the pub company Mitchells & Butlers and the hotelier InterContinental Hotel Group both fell as they made their trading debut on the London Stock Exchange yesterday, after demerging from Six Continents.

Both went straight in to the blue-chip FTSE 100. InterContinental, which includes the Holiday Inns and Crowne Plaza hotel chains, traded as high as 419p but ended at 372p, giving it a market value of £2.7bn, on concerns of a downturn in the travel industry. Shares in Mitchells & Butlers ended at 222.5p, after rising as high as 245p, giving it a market capitalisation of £1.6bn.

The road to the listings was fraught with drama, after the entrepreneur Hugh Osmond launched a £5.6bn hostile bid for Six Continents in March. Shareholders voted down Mr Osmond's bid in favour of a flotation, but a number of potential bidders have since been circling the pubs and hotels divisions. The board of Six Continents turned down a £2.8bn offer for Mitchells & Butler last month from a private equity firm, saying the bid was too cheap.

Takeover speculation for both companies continued yesterday, although analysts are sceptical as to the possibility of a deal coming off.

Mitchells & Butler, which runs more than 2,000 pubs including the All Bar One and the O'Neill chains, yesterday said promotional activity and a spell of good weather had helped buoy trading levels, and sales would be in line with expectations at the half year.

David Liston, an analyst at Gerrard, said: "A bid for the pubs business would have to be in excess of £3bn. That makes it difficult for a venture capital outfit to do, because they have to make a return on their money within three years. It is going to be 2005 before things really start to improve in the sector, which leaves it a little tight to make margins. Mitchells is also the largest player in the industry – there is no one else with a big enough market cap to take it over."

The hotel industry remains under pressure despite the conflict in Iraq reaching a conclusion. The outbreak of the Sars virus in Asia is already having an impact on travel business. "The short-term outlook for a bid for InterContinental does not look good," Mr Liston said.