Whitbread bids pounds 200m for David Lloyd

Pubs group continues acquisition campaign with an offer some analysts call 'very expensive'
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The Independent Online
Whitbread, the pubs and restaurant group, continued its expansion into the leisure sector yesterday when it announced a pounds 200m agreed bid for David Lloyd Leisure, the tennis clubs group run by the former Davis Cup star. The deal comes just a day after Whitbread paid pounds 180m for 16 Marriott hotels, making the company the UK's third-largest hotel operator.

Whitbread's 400p per share offer for David Lloyd Leisure values Mr Lloyd's personal shareholding, including options, at pounds 21m. Other directors and family members, including Mr Lloyd's brother John Lloyd, also stand to make substantial gains.

Commenting on the sale of a business he founded in 1980 and floated on the stock market in 1993, Mr Lloyd said: "I couldn't play singles. I had to play doubles because I always needed a partner. I believe the partnership with Whitbread will be tremendous and we will really be able to expand the business." Mr Lloyd will stay on as chairman.

Whitbread's chief executive, Peter Jarvis, who has been criticised for walking away from too many deals in recent months, spoke glowingly of this one, even though many in the City believe Whitbread has paid too much. "The growth in the health and fitness sector is the best we have identified," Mr Jarvis said. "With this transaction, we are buying the opportunity to lead this market in this country. David's business is miles ahead of anyone else's."

City opinion was divided on the deal, which involves Whitbread paying pounds 200m for pounds 40m of assets, with the rest being attributed to goodwill. One City analyst said: "To say it is a full price would be an understatement." Charles Mason of BZW described the deal as "very expensive". The bid price represents a 29 per cent premium to the share price last Friday, when David Lloyd confirmed that it was in bid talks. The shares were priced at 150p when the company was floated two years ago.

David Lloyd shares rose 31p to close at 395, while Whitbread slipped 4p to 618p at the close.

David Lloyd Leisure has 16 clubs, with another due to open in Cardiff in October. The company had planned to open two or three new clubs a year.

That expansion programme will now be increased to five or six a year. Mr Lloyd said there was scope for up to 50 in the UK and is confident that the backing of Whitbread's financial muscle will prove vital. Without a deal, it was expected that David Lloyd would have needed a rights issue in the next year to fund growth plans.

Although Mr Lloyd is selling his shareholding, he is spending pounds 1m of the proceeds to buy Whitbread shares and says he is committed to staying with the businesses.

However, there is no new incentive scheme or revised contract to keep him at the group. He will stay on his existing three-year rolling contract, under which he was paid a total of pounds 240,000 last year including bonus payments. He has not yet been granted any Whitbread share options.

Mr Jarvis and Whitbread's finance director, Alan Perelman, will join the David Lloyd board. Mr Lloyd will not receive a seat on the Whitbread board but Mr Jarvis did not rule out such a move.

Coupled with the Marriott hotels deal, the agreed bid for David Lloyd may help to silence criticism that Whitbread was proceeding too cautiously in its expansion programme and was allowing itself to be outbid for businesses that came on the market.

Whitbread bid for Courage but lost out to Scottish & Newcastle. It also expressed interest in the Harvester and Chef & Brewer pub-restaurant chains but was gazumped by Bass and Scottish & Newcastle respectively.

However, concerns remain that Whitbread's brewing division is now too small to compete effectively with the dominant players, Bass and S&N.

The changing face of Whitbread

1989 Sells wines and spirits division to Allied Domecq

for pounds 545m

1990 Acquires Boddington brewery and beer brands for pounds 50m

1991 Pays pounds 115m for Berni Inns

1992 Acquires Peter Dominic off-licences (now Threshers,

Wine Rack and Bottoms Up) for pounds 50m

1993 Raises pounds 225m from sale of stakes in eight

smaller brewers

1994 Loses out to Scottish & Newcastle for Chef & Brewer

1995 Loses out to Bass on Harvester pub-restaurant outlets

1995 Loses Courage bid battle to Scottish & Newcastle

1995 Pays pounds 180m for 16 Marriott hotels

1995 Makes pounds 200m agreed offer for David Lloyd Leisure