Thistle Hotels braced for pounds 1.5bn takeover approach

THISTLE HOTELS, Britain's second largest hotels group, increased the prospect of further consolidation in the UK market yesterday after revealing it had received several bid approaches.

Thistle, one of London's biggest hotel groups, is understood to have received at least three approaches from trade and financial buyers both from the UK and overseas. The board is now considering the approaches but may take two months to complete the process.

The group's London portfolio includes The Tower Thistle, by Tower Bridge, The Mount Royal at Marble Arch and the Royal Horseguards, off Whitehall. Most of its hotels are in the four star category.

The catalyst for the approaches is likely to have been the recent announcement by Brierely Investments, which holds a 46 per cent stake in Thistle, that it is reviewing its portfolio. Analysts had expected that this might lead to the disposal of its holding.

Thistle shares soared more than 18 per cent to close 37p higher at 237.5p valuing the company at pounds 1.45bn. The shares were priced at 170p when the company came to the stock market in October 1996.

Analysts said the list of potential suitors could include a host of American operators such as Starwood Hotels and Resorts, The Blackstone Group which recently bought the Savoy Hotel group and Patriot American Hospitality. "There are structural changes going on in the industry whereby US investors are interested in acquiring European assets" one analyst said. "So all hotel companies that have European assets are potential candidates for investment."

Financial buyers could include banks like Nomura Securities which has conducted a number of major pub acquisitions by using the target's cashflow to securitise the debt.

William Barney, head of hotel consultancy at accountants KPMG said: "These kind of organisations have been buying into other earnings-based businesses such as motorway service areas, pubs and betting shops. Hotel businesses offer a similar earnings stream, particularly when they have a lot of London hotels."

Another possibility is interest from American real estate investment trusts (Reits) which are attracted to the property values of British hotels groups.

"The US Reits and institutional buyers have lit the blue touch paper. From there you get trade buyers from the UK coming in looking to protect positions as market leaders," said John Jarvis, chief executive of Jarvis Hotels which reported a sharp rise in profits yesterday. Mr Jarvis predicted consolidation in the sector, though he said his company had received no approaches.

Thistle's statement, which prompted rises in the share prices of other UK hotels groups, marks a further step in the shake-up of the UK hotels industry. It comes just a week after Vaux, the North-east brewing and hotels group, announced it had received a takeover approach, thought to have come from Stakis.

It came as Jarvis Hotels reported a 24 per cent rise in full year profits to pounds 30m. Jarvis said it expected to benefit from structural changes under way in the UK industry.

It added that the changes would bring opportunities by making first class regional hotels available and by tempting investors.

"The prime buyers for any of these groups, particularly Thistle, will be North American who will be more interested in London than in the regions," Mr Jarvis said.