GPG (Guinness Peat Group plc) took a tilt this week at UK hotel, leisure club & drinks business De Vere Group plc, but by the end of the week the move looked well underpriced.
A boost in the share price effectively nullifies the GPG argument, which is that the sharemarket doesn’t put as high a value on De Vere’s hotels as they could collect in a selloff.
GPG’s aim is to become a cornerstone shareholder, engineer the selloff of the De Vere Hotels division, return money to shareholders and keep the rest of the business operating.
GPG announced its 415p/share offer for 28.5 million shares on Tuesday. On Friday the shares reached 440p. GPG has just under 10% of De Vere and its offer is for 25%, costing Â£118 million. If it gets less it will have to hand them back, and it isn’t prepared to take more. Bridgemere Holdings Ltd has 13.6% of De Vere, 3 fund managers hold 17.5% and the Greenall family holds just under 5%.
The company changed its name from Greenalls Group to De Vere Group in February 2000 after a radical restructure. It sold its tenanted pubs, the Inn Partnership, to Nomura for Â£370 million and its managed division, Greenalls Pubs & Restaurants, to Scottish & Newcastle for Â£1.14 billion.
GPG wanted to take the changes further then, proposing the splitting of the 4-star De Veres from the 3-star Village Leisure brand and the Greens health & fitness clubs at the February 2001 annual meeting, but got only 11% support.
Selloff would get multiple up, says GPG’s Nixon
GPG chairman Blake Nixon said this week De Vere’s share price lifted in January when the company said it was selling 4 hotels, but the price slipped back when shareholders realised this didn’t signal the start of concerted efforts by the board to improve shareholder value. Mr Nixon & GPG’s UK investment manager, Mark Butcher, intend standing for the board if their share bid succeeds.
The De Vere hotels division is on the books at Â£551 million. Said Mr Nixon: “Post restructure, De Vere’s shares would have a much enhanced growth profile and would, GPG believes, in ordinary stock market trading, merit an attractive prospective multiple, underpinned by a conservative net asset backing.”
The Times of London quoted Mr Nixon saying: “A stock market value will always be below what a venture capitalist or financial player would put on it because they’d gear it up, and debt is cheaper than equity.”
De Vere Hotels is an upmarket, primarily provincial hotel chain targeted at the conference, corporate & leisure markets. Its 21 De Vere hotels include 13 golfcourses (one of them is The Belfry, home to the Ryder Cup) and the majority have extensive leisure facilities. 12 associate hotels have access to the group’s marketing & central reservations services and De Vere Resort Ownership, the UK’s largest 5-star lodge operator, has 132 lodges.
Village Leisure Hotels has 14 midmarket hotels, each around 100 rooms plus a 3700mÂ² health & fitness club and extensive food & beverage operations. More are under construction and further sites are in the pipeline.
Greens is a standalone health & fitness club brand. The 15 clubs are all around 3700mÂ² with spacious, well equipped gyms, 25m pools, aerobics studios, steam rooms, saunas & spas.
Website: De Vere Group plc