Whitbread's Lloyd deal still uncertain

Whitbread, the pubs and leisure group, became Britain's third-largest hotelier yesterday when it completed its long-awaited pounds 180m takeover of 16 Marriott hotels from the Canadian Group Scott's Hospitality. However, the expected deal with David Lloyd Leisure, the tennis club group run by the former Davis Cup player, failed to materialise as uncertainty continued about how Mr Lloyd could be persuaded to stay with the group post-takeover.

Whitbread's chief executive, Peter Jarvis, avoided commenting on the bid speculation but said: "I think David Lloyd is head and shoulders above everyone else that operates in that lifestyle kind of business. A lot of people have looked at his business and found it very attractive. I'm sure he will sell."

However, the continuing rise in the David Lloyd share price, which climbed another 23p yesterday to 364p, fuelled concerns among some analysts that at this price,Whitbread would be paying too much. At this price Mr Lloyd's 8.5 per cent stake would be worth around pounds 15m.

The Marriott deal adds a further 3,100 hotel rooms to the group's UK portfolio, taking it ahead of Queens Moat Houses and Ladbrokes Hilton subsidiary in Britain's hotel league. It now stands third to Forte and Mount Charlotte Thistle. Marriott's UK flagship is the 349-bedroom Heathrow hotel, with other big centres at London's Marble Arch and Regents Park. It also operates four three-star hotels under the Courtyard by Marriott brand.

Whitbread will re-brand its existing three and four-star hotels under the Marriott name. This will include Whitbread's 14 Country Style hotels, which have golf courses and leisure centres attached and will become Marriott Resort Hotels. The Travel Inns group of budget hotels will not be included in the re-branding.

The deal gives Whitbread access to Marriott's worldwide reservation system, which should enable the company to become a favoured choice for Marriott's US and Far Eastern customer base. Economies of scale should be achieved when Marriott starts buying Whitbread's beers, wines and spirits. Cost savings will be achieved with the merging of administration systems, which will include some job losses. However Mr Jarvis said more jobs would be created though the company's hotel openings.

The deal was welcomed in the City, where analysts have been waiting for Whitbread to pull off a deal after losing out to Scottish & Newcastle for Courage and to Bass for the Harvester chain. Analysts felt the company should make better use of its balance sheet, where gearing is only around 3 per cent.

Colin Humphreys of Panmure Gordon said: "The deal makes sense. Whitbread has made great strides in its hotels division and has been getting out of the three-star mid-market hotels.

Some analysts have wondered whether Whitbread might sell its brewing division which, even before the Marriott deal, contributed only 14 per cent of operating profits. With Scottish & Newcastle's takeover of Courage as good as completed, Whitbread will fall to fourth place in the UK beer league with a share of only 12-13 per cent.

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