Sir Rocco stuns City with Forte buyout plan

MATHEW HORSMAN

Sir Rocco Forte last night stunned the City with a proposed leveraged buyout of the Forte hotel empire from Granada. The assets, which include luxury hotels in Britain and overseas, are worth pounds 2.5bn according to Forte's own figures.

Analysts warned that the new company would be highly leveraged in a sector that demands huge injections of capital.

But few were completely surprised by the dramatic move, pointing out that Sir Rocco had made it clear he intended to return to the hotels business, possibly through a bid for some of the Forte hotels that Granada will sell to help pay off the pounds 2.5bn in debt it took on to finance its pounds 3.8bn hostile offer, which was declared unconditional on Tuesday.

Forte's advisers include SBC Warburg, Cazenove, Morgan Stanley, UBS and JP Morgan. According to Forte, financial discussions have been encouraging. If successful, the group could seek a stock marketing listing.

A concrete proposal is to be made within a few weeks, Sir Rocco said last night. Granada has already lined up several potential buyers for the hotels business, and is expected to drive a hard bargain. ITT-Sheraton, Bass, Accor and Marriott are among the possible buyers. According to Forte's own figures, the assets targeted in the LBO are worth about pounds 2.5bn, but carry about pounds 1bn in debt.

Sir Rocco, along with his sister, Olga Polizzi, are believed to particularly covet the Waldorf-Astoria hotel and the Meridien chain. If successful, the LBO would also give them the Exclusive Hotels and 12 other hotels in London.

Ironically, they would use some of the pounds 300m the Forte family will receive from Granada when they tender their own shares. Sir Rocco is also likely to receive about pounds 200,000 as compensation for the breaking of his management contract.

All told, Granada is selling assets worth pounds 2bn, including its stake in the Savoy Group of hotels. Mr Robinson plans to meet the Savoy management by next week to discuss an orderly disposal of the shares.

Separately, sources at Whitbread rubbished reports that it had failed to support Forte in a last-ditch effort to keep the hotels group independent. According to the reports, Whitbread, which had agreed to buy Forte's restaurants and budget hotels for pounds 1bn if the Granada offer was resisted, was meant to buy Forte shares in the market and to offer up to 400p to buy the pivotal 14 per cent stake held by Mercury Asset Management.

Whitbread is now expected to bid for Forte's Welcome Break motorway service areas, which are being sold by Granada.

Granada said it might overturn the pounds 122m sale of the White Hart hotel chain to Regal Hotels, announced just before Forte succumbed to Granada's pounds 3.8bn bid, because the deal was not done on a cash basis. "In the round, we are unenthusiastic about anything but cash," Mr Robinson said.