Chelsfield buys out partner in internet hotel venture for £35m

The property company Chelsfield yesterday pledged its commitment to its Global Switch internet hotel venture by announcing plans to buy out its partner for £35m.

Under the terms of the deal, TrizecHahn, Chelsfield's Canadian partner in Global Switch, will end up with a stake of about 8 per cent in Chelsfield.

The internet hotel business, in which Chelsfield invested at the peak of the internet boom in March of 2000, has eight data centres around the world and employs some 200 staff.

Once a favourite among investors, internet hotels fell from grace after the dot.com bubble burst with many of the data centre operators shutting up shop altogether.

Nigel Hugill, Chelsfield's managing director, said: "I was only prepared to put in more money on the basis that we had management control."

The company, which appointed Andrew Vander Meersch as Global Switch's new chief executive, hinted redundancies were likely at Global Switch in an attempt to cut costs.

In addition, Chelsfield, which owns offices and retail parks around the UK, also unveiled plans yesterday to raise £46.6m through a share offer at 285p a share.

"It's not really much to do with this [Global Switch] transaction. It's just to keep the balance sheet straight. We have so many other big projects on and the board was anxious that this wasn't seen as inhibiting our ability to do other things," Mr Hugill said.

The moves came as Chelsfield, which is headed by the chairman Elliott Bernerd, unveiled a 23 per cent rise in operating profits to £70.7m for the year ended 2001. Its net rental income grew 15 per cent to £67m.

However, after accounting for a £73.6m asset write-down relating to Global Switch, the company recorded a pre-tax loss of £25.6m in 2001 compared with a £41m profit a year earlier.

It said its trading performance in the current year was "in accordance" with general expectations but noted that Global Switch had not been "immune" from the slowdown seen in its sector.

Chelsfield, which is buying TrizecHahn's stake in Global Switch for £35m worth of shares, said the Canadian firm was subscribing for £25m worth of Chelsfield shares as part of the deal.

It said it expected the purchase of Global Switch, whose biggest customer is Global Crossing which has filed for chapter 11 protection, would have a negative impact on earnings in the current year but would make a positive contribution from 2003.

The deal, which is still to be approved at an EGM, is expected to generate "substantial" tax advantages, the company said.