Whitbread deal on restaurants boosts Forte's defence

Late rally: Agreement with brewing giant turns tables on chief executive of Granada as drama intensifies over hostile pounds 3.2bn bid

JOHN SHEPHERD

CLIFFORD GERMAN

and MATHEW HORSMAN

Forte will today announce the proposed sale of its pounds 1bn restaurant business to Whitbread, to head off demands for clarification from the Takeover Panel.

The sale, aimed at fending off a pounds 3.2bn hostile bid from Granada, was already the subject of well-informed reports in the press over the Christmas holiday.

Whitbread is expected to offer pounds 900m in cash and to assume around pounds 100m in debt in return for the Little Chef, Happy Eater, Welcome Break, and Cote France chains, which Forte originally intended to demerge in an attempt to increase shareholder value and to scupper Granada's bid. The agreement will also involve Forte's Travelodge hotels business. The Wheeler's Restaurant chain, comprises six sites, will be sold off by Forte separately.

If successful, the deal would top Whitbread's earlier purchases of 16 Marriott hotels and the pounds 200m David Lloyd Leisure group, and make up for the company's defeat at the hands of Scottish & Newcastle, which paid pounds 450m for Courage, the Australian-owned brewers, in a bitter bid struggle in May.

It would also confirm the negotiating skills and quick response of Peter Jarvis, Whitbread's chief executive, who has spearheaded the company's expansion in the leisure and catering markets.

Forte is expected to give a binding commitment to complete the deal, which is conditional on the Granada offer for Forte lapsing.

Since the bid from Granada was tabled last month, Forte chairman Sir Rocco Forte has already sold US Travelodge for pounds 114m, Lillywhites for pounds 28.5m and Griersons for pounds 23m, and announced his intention to dispose of the group's controversial stake in the Savoy Group of hotels, which could be worth pounds 220m.

A deal with Whitbread will increase the potential proceeds of the latest disposal programme to around pounds 1.4bn, and virtually wipe out Forte's debts, at the cost of shrinking the company's business by one-third.

Forte has until 2 January to publish its final defence document, which could also include a forecast increased dividend. The deal with Whitbread, however, is conditional on Forte shareholders first rejecting Granada's bid, which is due to close on 9 January.

The bid was unveiled in London on 22 November, while Sir Rocco was shooting in Yorkshire. Forte's deal with Whitbread appears to turn the tables on Granada's chief executive Gerry Robinson, who was spending Christmas at home in county Donegal. The Forte restaurants Whitbread plans to buy are precisely the assets which Granada most wants.

Granada's initial offer is for four shares plus pounds 23.50 in cash for every 15 Forte shares. At last week's closing price of 635p for Granada the offer is almost exactly in line with Forte shares at 326p in the market and currently values Forte at pounds 3.23bn.

A deal with Whitbread ahead of the first closing date for the Granada offer will shift the onus back on to the Granada camp. Mr Robinson will now have to increase his offer by at least another pounds 600m, according to independent analysts in the City, or sit tight and risk seeing the Forte shareholders vote for the Whitbread cash. That would give Sir Rocco and his fellow directors time to complete the transformation of their company into a focused hotels business. A higher bid must be made before 9 January unless Granada now asks the Takeover Panel to stop the bid clock.

If Granada's bid fails, Mr Robinson will come under increasing pressure from his shareholders, especially institutions. Some in the City had suggested he had chosen the wrong target, saying that companies similar to Granada would have made more sense. A favourite choice is Pearson, the media and financial services company, viewed as being significantly undervalued in the market.

Battle for Forte

The bid so far:

22 November: Granada launches pounds 3.3bn bid

24 Nov: Offer document published

3 December: Forte announces sale of Lillywhites

8 Dec: Defence document published by Forte, outlines demerger proposals

19 Dec: talks to sell White Hart hotel chain collapse

20 Dec: sale of Forte's US Travelodge chain announced

21 Dec: Council of Forte given leave to vote as it wishes

24 Dec: planned sale of restaurants to Whitbread

revealed

Key dates to come:

2 January: Day 39 (no more financial information from

the defender)

9 Jan: Day 46 (Granada last chance to increase bid

barring Takeover Panel ruling that Whitbread

constitutes white knight bidder)

25 Jan: Day 60: normal bid period ends