Compass sells Posthouse, Heritage - Bass, Macdonald beef up hotel portfolios

LONDON (FTMW) - Compass Group [UK:CPG] said on Wednesday it had sold its Posthouse Hotels chain to fellow U.K. leisure company Bass [UK:BASS] for £810 million and its Heritage chain to Macdonald Hotels for £235 million.

Both acquisitions would be paid in cash and takes Compass' total proceeds from hotel disposals to £1.36 billion. "Compass has got the right price, and more importantly, executed on schedule," David Greenall of Commerzbank told .

The Posthouse chain consists of 79 mid-scale hotels and operates a total of 12,300 rooms in the U.K. and Ireland. The unit recorded operating profits of £110 million before central costs in 2000, Compass said in a statement. The acquisition would be earnings enhancing in the fist full year, Bass said.

Meanwhile, Macdonald Hotels [UK:MDH] and Bank of Scotland [UK:BSCT] said their joint venture had bought the Heritage Hotels chain of 48 hotels. The company will pay £200 million in cash on completion of the deal and a £35 million after 18 months.

Bass upgrading to Holiday Inn

Bass said it would spend £75 million over the next three years on upgrading the Posthouse hotels to its Holiday Inn brand. About 15 of the hotels would be sold within the next 18 months, because they don't fit the Holiday Inn brand, said chief executive Tim Clarke said.

The company aims to raise earnings before interest and tax by 50 percent in the next four years, by upgrading the rooms to attract business customers. Bass said Holiday Inn's better brand recognition in the U.K. together with Bass' sales force would add customers to the hotels.

"This transaction continues the repositioning of Bass and replaces half the profits of Bass Brewers, that was sold for £2.3 billion last year, with profits with significant growth prospects," Bass chief executive Tim Clarke said.

Historic buy

Macdonald said the acquisition of Heritage was a major strategic move. Heritage operates 48 hotels with more than 3,000 rooms in historic towns and villages in the United Kingdom. The unit generated earnings before interest, tax, depreciation and amortisation (EBITDA) of £29.4 million last year. Macdonald would invest £31.25 million in the joint venture, and grant Bank of Scotland 3 million new shares with an exercise price of 167 pence.

Macdonald Hotels fell 2.4 percent to 165.75 pence.

Shares of Compass were up 0.8 percent at 511 pence and Bass was flat at 700 pence as the FTSE 100 traded 1 percent weaker.

No impact from foot-and-mouth

Bass said it had not seen an impact in its hotels unit from the outbreak of foot-and-mouth disease in the U.K.

Compass has so far generated a total consideration of £1.36 billion from selling its hotel assets after it demerging from Granada [UK:GAA], the U.K. media company, last year. Compass is moving away from hotel management and into food services and catering.

Bass said it was not looking to make further acquisitions in the mid-market of the industry. "This was the major move we wanted to make," Clarke said. He declined to say whether it was interested in buying the more upscale Le Meridien chain, which is also being sold by Compass, but did not rule out further acquisitions.

"This still leaves us with considerable firepower," Clarke said.

Commerzbank said it valued Le Meridien at as much as £2.4 billion, slightly higher than the consensus estimate of £2-2.2 billion. But executing the deal was more important than the price, Greenall said. "I would expect it to happen within one month," he said.

Commerzbank said it didn't expect any big deals coming from Compass in the near term. They have already spent a good bit if this money, Greenall said. Commerzbank rates Compass a "buy" with a 650 pence price target.

Ivar Simensen is a reporter for FTMarketWatch in London.