Granada Compass mulls sale of hotel chains

Granada Compass, the hospitality giant, yesterday confirmed that it was conducting a strategic review which "may or may not lead to the sale of all or part of the hotel portfolio", apparently in response to shareholder pressure.

Granada Compass, the hospitality giant, yesterday confirmed that it was conducting a strategic review which "may or may not lead to the sale of all or part of the hotel portfolio", apparently in response to shareholder pressure.

When the £17.5bn merger of Granada's hotels and restaurants arm and Compass, the catering group, was announced in May, the two companies claimed that "the combination of the hotels and food-service businesses will be a key advantage in our future successful development". But Compass investors reacted sceptically to the plan, arguing at the time that the group's high-growth contract catering service would be held back by Granada's old-fashioned hotels businesses.

Julian Easthope, an analyst at UBS Warburg, yesterday said: "I'm not surprised they are talking about selling the hotels unit. There has obviously been a lot of shareholder pressure and it looks like they're bowing to that."

Asked whether the disposal of the hotels arm would destroy the original logic of the Granada-Compass tie-up, Mr Easthope said: "I am not convinced there was a huge amount of commercial logic in it anyway."

Granada Compass confirmed that, since the merger, it had received approaches "from a number of parties" regarding the possible acquisition of some or all of the hotel assets.

Granada Compass shares yesterday closed up 7.5p at 714.5p on relief at the announcement. They have fallen as much as 33 per cent this month after HSBC, one of the company's house brokers, slashed its pre-tax forecast for the year by £40m because of accounting inconsistencies.

The hotels sale is likely to include the 120-strong Le Meridian luxury chain and the UK Posthouse and Heritage units, and is expected to fetch about £3bn. Granada Compass is set to keep its Travelodge budget hotels and Little Chef roadside restaurants, which are run separately from the hotels division.

Accor, the French company which owns the Sofitel and Novotel hotel brands, confirmed late yesterday that it was in "exploratory" talks with the UK group. But it added that the outcome and duration of the discussions was "not predictable". Concerns over how Accor would finance such a purchase pushed the company's Paris-listed shares down just under 5 per cent to 44.5 euros (£26.90).

Analysts said the deal would make sense for Accor but added that the group could face competition from UK players such as Bass or Hilton. An announcement is expected by December, when Granada Compass unveils its annual results.