Inside Track by Mark Stretton
It feels like this market is on the cusp of some seismic deal activity that will play a significant part in its future shape and structure.
A number of companies are in play including some of the biggest groups in the sector, most notably Mitchells & Butlers, the bar and pub-restaurants group that has attracted the interest of Robert Tchenguiz.
The property magnate, who is working in concert with Apax Partners, is this week expected to launch a bid for the business at somewhere between 525p and 550p a share, although analysts suggest that a bid will need to start with a six in order to engage key shareholders.
A bid of 600p would value the business at more than £4.5bn, including debt.
Meanwhile, it has emerged this weekend that Travelodge-owner Permira has conducted a beauty parade of potential advisors to handle a possible sale or flotation of the business.
Travelodge is a highly attractive prize for Whitbread, the leisure group that runs Premier Travel Inn. It would represent a transformational deal, sealing a dominant position in the lodge market.
Given the size of the prize, the leisure group should be able to pay more for Travelodge than anyone else and there is little reason why Whitbread would allow the group to float.
It has also emerged that Whitbread is leading the chase for Next Generation, the £200m fitness chain being auctioned by UBS. If Whitbread is successful it would put the group in prime position to consolidate the premium end of the fitness club industry. Esporta would surely be next.
As has been written here before, this throws up an interesting scenario about the future shape of Whitbread. It could also offer M&B shareholders a more attractive proposition to the “jam-today” cash of Tchenguiz.
The pub-restaurants division of Whitbread, which comprises Beefeater and Brewers Fayre, has underperformed for an inordinate number of years. It makes about half the profit of M&B’s pub restaurant arm, which is a similar size, and the gap in performance is growing all the time.
The turnaround of the division, led by Phil Urban, could reasonably be expected to take at least two years. It requires major surgery (if not a killing) of the brands. It is probably time that Whitbread does not have.
It is hard to imagine Whitbread winning on three fronts: consolidating the budget hotel market; the premium fitness sector; and sorting out the pub restaurant business.
There has long been a questionmark over the validity of keeping all these businesses together.
Perhaps it is time for the obvious to happen.
The £1bn sale of Beefeater and Brewers Fayre would fund the acquisitions of Travelodge and Next Generation.
A deal to buy the Whitbread pub-restaurant business, which despite its woeful underperformance is regarded as perhaps the finest managed-house estate in the UK, would be as strategically significant for M&B, as the acquisition of Travelodge would be for Whitbread, funding the next decade of growth for shareholders.
Given the superior performance that M&B would expect to realise from these assets, it could justify paying a price well north of the typical ebitda multiples seen in such deals. If ever there was a case for “strategic premiums” surely this is it.
Given the performance of M&B since it was spun out of Six Continents three years ago, Tim Clarke deserves his chance.
It remains to be seen if he and Alan Parker, his opposite number at Whitbread, can do a deal.
