Forte shares surge as institutions bet on Granada victory

MATHEW HORSMAN

Trading volumes in Forte soared dramatically yesterday as 24 million shares, or nearly 2.5 per cent of the company, changed hands. Dealers said large institutions were adding to their holdings, reflecting the growing belief that Granada will win its pounds 3.8bn bid for the hotel and restaurant company.

The trading pushed Forte's shares to 360p, up 9p, and just 2p short of the all-cash alternative on offer from Granada. One analyst said: "If you believe Granada is going to win, then buying Forte shares is a cheap way of buying into Granada." Institutions were also attracted by the wide margin between Forte's current price and the value of Granada's cash- and-shares offer of up to 385p (including a tax benefit available to pension funds).

Granada's own shares raced ahead by 16p to close at 653p. Among the big institutional buyers were Mercury Asset Management, which is the biggest single shareholder in both Granada and Forte. MAM's Carol Galley, arguably Britain's most influential investment manager, was instrumental in ensuring the success of Granada's hostile bid for LWT in 1993. She is expected to play a similarly pivotal role in the outcome of the Forte battle, using MAM's 13.95 per cent stake, to which half a million shares were added in trading on Tuesday.

Speculation that Granada itself was behind the purchases was scotched by informed sources, although it appeared that Hoare Govett, brokers to Granada, were heavy buyers.

Meanwhile, Forte found some support yesterday when the Savoy Group publicly backed Forte's plan to distribute its 68 per cent holding in the luxury hotels company to shareholders. In a letter unveiling a robust new profits forecast for 1995, Sir Ewen Fergusson, Savoy's chairman, said Forte's plan "would enable management to continue with its strategy of realising [the group's] considerable potential."

Speaking in the plush surroundings of the Savoy hotel yesterday morning, Sir Ewen added: "We have had no contact with Granada since Sir Alex Bernstein [Granada's chairman] made a courtesy call when the bid was announced. There is certainly no concrete offer on the table from Granada." The television and leisure company has said it, too, would dispose of the Savoy stake if its bid succeeded.

Sir Ewen made the comments as Forte forecast 1995 profits of pounds 11.4m, up 165 per cent, and promised to double the dividend, to 14p per Class A share and 7p per B share.

The sharply higher profits reflect an upturn in the London hotels market, where the Savoy group runs seven luxury properties, including the Connaught, the Berkeley and the Savoy. Sir Ewen said a new management team in place since late 1994, led by the managing director, Ramon Pajares, had controlled costs, improved occupancy rates and increased revenue per room.

The company also sold off its ailing Lancaster Hotel and a country club, Forest Mere. It is part way through a pounds 58m refurbishment programme, to upgrade the Connaught, Claridge's and the Berkeley.

Mr Parajes said yesterday he was aiming to increase occupancy rates to about 80 per cent, in line with the rates achieved by some competitors.

Forte said the results at the Savoy were proof that the London market was turning around. "This is certainly not the time to be selling hotel properties, and certainly not at fire-sale prices," a spokesman said.

Granada has said it will sell trophy hotels and the Meridien and Exclusive chains if its bid succeeds, in part to finance a special dividend of 47p payable to Forte shareholders as part of Granada's increased and final bid, announced Tuesday. It insists that it has identified serious buyers and that it will be able to fetch good prices.

Granada also attacked Forte's dividend policy yesterday, suggesting that the company's promise of 20 per cent higher payouts in each of the next three years would require a dramatic rise in profits. "Forte's management need to spell out, in detail, how they can afford to meet their promise," Gerry Robinson, Granada's chief executive, said.

Forte fought back, criticising Granada for becoming "forced sellers of assets on an unprecedented scale within a short time-frame".