War of words over Six Continents

Punch founder slates record of pubs to hotels group and threatens to launch hostile bid

Hugh Osmond, the leisure entrepreneur stalking Six Continents, yesterday revealed he would consider making a hostile takeover bid for the hotel and pub operator as he launched an outspoken attack on the group's management team.

Mr Osmond, who would use his AIM-listed cash shell Capital Management & Investment as a bid vehicle, said he would appeal direct to Six Continents' shareholders "if necessary".

In a statement that fleshed out Mr Osmond's rationale for tabling a possible bid for Six Continents, the former head of Punch Taverns criticised the leisure group's plans to press ahead with a scheme to spin off its pubs arm as not being in shareholders' best interests. A demerger would achieve "absolutely nothing", he said, adding: "If we make this bid, believe me, we will fundamentally improve this business."

CMI, who has hired Credit Suisse First Boston and Lehman Brothers as its financial advisers, said if successful it would break up the hotels division, which spans brands such as InterContinental and Holiday Inn. It plans to pursue a number of financial transactions to unlock cash from the group's fixed asset base – worth some £7.6bn – such as asset sales, sale-and-leasebacks and securitising the cash flow.

Mr Osmond said he had "substantive discussions" with a number of possible partners although he declined to give names. "There are operators who can run this business substantially better by breaking it into separate parts. Whether we deal with them as buyers, partners or managers we will see."

He attacked the Six Continents board, headed by Sir Ian Prosser, for delivering "unacceptably low returns". He criticised it for selling businesses such as Gala, the gaming group, too cheaply, for destroying shareholder value through its £1.8bn acquisition of InterContinental, and for investing a net £2.8bn in its business since 1998 only to see operating profits fall. "Since 1989, not to have achieved any growth in the share price is quite an achievement," he added.

Responding to CMI's accusations, Six Continents said the shell company had "chosen to ignore the fact that in terms of total shareholder return [we have] outperformed the FTSE 100 over the last one, two, three, five and 10 years". In a statement, Six Continents attacked CMI's approach as "fundamentally flawed", highlighting its lack of experience in the hotels sector.

Richard North, Six Continents' finance director who will step up to become chief executive of the hotels arm, said: "The key thing is at the end of the day shareholders have seen value through the performance of the share price and the dividend." He added: "We have absolutely thrashed [the US hotel companies] in terms of total shareholder return over the same period."

Shares in Six Continents soared 25.5p to 615.5p on hopes that CMI's interest could spark a bidding frenzy akin to that under way for Safeway, the supermarket chain. Analysts have been split about possible valuations for the leisure group, with some suggesting Mr Osmond could bid 650p a share and others arguing that the group is worth nearer 850p a share. At the higher end, the group's equity would be worth £7.4bn. It also has £2.5bn of debt.

Mr Osmond, who first approached Six Continents in October about a possible deal involving its retail estate, remained tight-lipped about how he intended to structure a deal. However, he admitted: "We are using CMI not least because of its ability to issue stock." He added: "It is very much our intention that shareholders participate fully in the upside of this business."

Despite the lack of detail about an offer, several large shareholders have signalled their inclination to back Mr Osmond. "We would be very interested in listening to Mr Osmond. There is clearly a feeling among shareholders that something needs to happen with this business; this has acted as the catalyst," Helen Driver, at Standard Life Investments, one of Six Continents' largest 10 investors, said.

Defending his decision not to outline his funding plans, Mr Osmond referred to the £2.75bn battle he fought against Whitbread to gain control of the former Allied Domecq pub estate. "I don't want that track record to be blemished by a frivolous bid," he said, adding: "I'm not big on making promises and not delivering on them."

In an attempt to shoot down Mr Osmond's tentative plans, Six Continents revealed it had rejected an approach from the entrepreneur's private equity group, Sun Capital Partners, last year. The proposal, which involved a sale-and-leaseback deal for the group's 2,200 pubs, was rejected after Six Continents' advisers concluded "material value would have been transferred from [our] shareholders to Sun Capital". One element of that proposal would have seen Mr Osmond reverse Spirit, the managed pubs company spun out of Punch Taverns, into the Six Continents retail estate. Mr Osmond is a shareholder in both Punch and Spirit, and sits on Spirit's board.

Rebutting suggestions from Mr Osmond that Six Continents had been "extremely resistant to approaches", Mr North said he would talk to "anybody who comes to us with a proposal that properly reflects value and looks deliverable".

Commenting on his plans, Mr Osmond said: "There will be a hell of a lot more value than this management has generated over the last 10 years, or is likely to generate over the next 10 years, or ever." He added: "I don't recall Mr North having a lot of experience in hotels."

Any takeover offer from CMI would be conditional on shareholders rejecting the proposed demerger, it said. CMI is under pressure to table a bid quickly, ahead of the Six Continents' shareholder meeting scheduled for 12 March to approve the separation.

To get around the fact that most institutional investors are unable to hold AIM-listed paper, CMI said it intended to seek a full stock market listing after the completion of any offer.

Mr Osmond denied that he was seeking to flush out possible partners by issuing statements about his intention to launch a bid before revealing whether he could get financial backing for an offer.

Charge sheet against Sir Ian Prosser, according to Hugh Osmond

* Attacked board for delivering "unacceptably low returns over recent years";

* Blamed board for selling assets, such as its Gala gaming business, too cheaply. Gala, which originally fetched £236m, was recently sold on for £1.24bn;

* Claimed board had invested a net £2.8bn in Six Continents since 1998 to see operating profits fall by £217m;

* Accused board of shelling out £1.8bn on InterContinental, yet letting the upmarket hotels group destroy shareholder value in every year since its acquisition;

* Blamed board's decision to hike net debt and use disposal proceeds to maintain dividends ­ only to slash payout by 38 per cent post-demerger;

* Attacked fall in share price that has seen stock slide to the level of mid-1989.