Ailing Trafalgar sells the Ritz

TOM STEVENSON

Deputy City Editor

Trafalgar House has sold the Ritz Hotel in what is expected to be a series of disposals to shore up its fragile balance sheet. The Barclay brothers, owners of London's Howard Hotel and the European newspaper, are to pay pounds 75m for a hotel that has defined luxurious accommodation.

The disposal of Trafalgar's last hotel is the first sign that a series of flying squads put into subsidiary companies by new chief executive Nigel Rich is having an impact. Mr Rich ordered a complete re-evaluation of Trafs after it declared a larger-than-expected loss of pounds 48m for the first half of the year to March, with teams assigned the task of recommending which parts of the Cunard to engineering to housebuilding group should be retained.

A spokesman for Trafalgar House said it had achieved a full price for the hotel, in excess of its book value of pounds 60m, and a high multiple of operating profits in the year to September 1994 of pounds 3.78m.

The disposal marks a change of strategy following Mr Rich's attempt to buy Trafs out of trouble by launching a bid for Northern Electric last December. The bid, the first for a Rec, was widely criticised as little more than financial engineering - the deal would have gone a long way to solving Trafs' advanced corporation tax problem.

The reclusive Barclays own a string of expensive hotels around the world. They live in Monte Carlo, and are building a private hideaway on Brechou, a granite slab off Sark in theChannel Islands. They own or have owned stakes in six of London's best casinos, including the Ritz, a yacht, a brewery, and one of Britain's biggest car dealership chains. The acquisition is being made through Ellerman, the Barclays' investment arm.

Since Trafalgar House launched its bid for Northern, focusing the spotlight on its finances, its shares have fallen like a stone. The sale of the Ritz provided some cheer, with the ordinaries adding 1p to close at 31p, less than half their value last December. The convertible preference shares also bounced 2.75p to 51p, but at that level they still yield almost 15 per cent, which suggests the City doubts whether investors will ever receive the payout.

The whole group is now worth just pounds 334m, less than the pounds 400m Hong Kong Land, Trafs' largest shareholder, has injected into the company since 1992 to secure a 26 per cent stake.

Battling to cope with tough trading conditions in all its core markets, Trafs is expected to make a substantial full year loss for the 12 months just ended.