Speculation that the two companies were in advanced negotiations began on Friday following a last-minute surge in Swallow's shares, which shot up more than 10 per cent to close 30p higher at 307.5p. It is understood that the financial advisers to the two companies spent much of the weekend in discussions and that Whitbread was yesterday preparing to offer about pounds 550m, or 375p a share for Swallow, a 35 per cent premium to Friday's closing price.
If the deal goes ahead, it is likely that Whitbread would merge the 38, mostly four-star, Swallow hotels with its own UK Marriott chain. The two groups are thought to have held talks a year ago on a possible tie-up which foundered over price.
Analysts said Whitbread is badly in need of a deal of this scale after it lost out to Punch Taverns to buy Allied Domecq's retail unit. Its failure made Whitbread the subject of takeover speculation, both as a target and a buyer.
Swallow has long been seen as a bid target, but attention has been focussed on a merger with Greenalls, the leisure group that recently sold its pub chain to Scottish & Newcastle. Greenalls is reported to have held informal talks with Swallow over a possible pounds 1bn merger of their hotel businesses. It has also been suggested that Whitbread could bid for Greenalls.
Whitbread manages 36 Marriott hotels in Britain, including 10 hotel and country clubs, which would fit neatly with Swallow's hotels, which are mainly in town centres.
Swallow also has a small chain of managed pubs. The company, which is based in the North-east of England, closed its two breweries in Sunderland and Sheffield this summer and then sold off most of its tenanted pubs.
Aside from pubs and hotels, Whitbread has the UK licences for Pizza Hut and TGI Friday's, and owns the David Lloyd Leisure fitness club chain. The company spent pounds 194m during the first half of this year to expand its leisure, budget hotel and coffee businesses and expects to spend about the same on expansion plans during the second half.
Announcing the group's first half results in October, David Thomas, Whitbread's chief executive, said: "We are gearing up for growth."Reuse content