Whitbread poised for Greenalls bid

WHITBREAD, the leisure giant, is thought to be working on a bid for Greenalls that would value the troubled hotel and pub group at pounds 1.2bn.

In the latest example of rapid consolidation among pub and hotel groups, Whitbread is said to be considering making an offer which would value each Greenalls share at 400p - an 18 per cent premium to last Friday's closing share price of 340p.

Both Whitbread and Greenalls refused to comment on the reports. However, it is understood that Greenalls was unaware of its larger rival's intentions and that no discussions have taken place between the two companies.

Meanwhile, Whitbread also appears to be interested in buying the Swallow chain of hotels owned by Vaux, the Sunderland-based brewing and hotel group which last week parted company with its chief executive and finance director.

Whitbread's interest in Greenalls is likely to have been sparked by its target's dismal share price performance in recent months as investors have grown increasingly concerned about a downturn in consumer spending.

Greenalls has also become a more obvious bid target since selling its portfolio of 1,200 tenanted and franchised pubs to Nomura, the Japanese investment bank, for pounds 370m in December. This left the company to concentrate on its managed outlets, which include the Henry's bars and Millers Kitchen food pubs, and its De Vere chain of hotels. Greenalls is also starting a chain of fitness clubs, to be called Greens.

Even though Greenalls has pledged to return pounds 100m of the proceeds of the pub sale to shareholders, its share price has failed to respond. Greenalls is planning to issue a trading update for investors at its annual meeting on Thursday.

Shareholders are likely to be sympathetic to the prospect of a bid. Hermes, the pension fund manager that owns a 6 per cent stake, has targeted the company as being in need of a shake-up. Fund manager Schroders is Greenalls' largest investor with a 13 per cent shareholding.

A takeover would produce extensive cost savings by allowing Whitbread to combine Greenalls' pubs and restaurants with its own while integrating the hotels into its own Marriot chain. However, a bid may encourage other potential buyers such as Scottish & Newcastle, the brewing and pubs group, to enter the fray.

Whitbread would have no trouble funding an offer. Its last reported net borrowings were just pounds 800m on shareholders' funds of pounds 2.5bn. David Thomas, the chief executive, has clinched just one major deal since he took the job in 1997, merging the Thresher chain of off-licences with the Victoria Wine chain owned by Allied Domecq.

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