Granada confronts spectre of defeat

GRANADA was this weekend seriously considering for the first time whether to drop its hostile bid for rival leisure group Forte, as it became clear that it will have to raise its pounds 3.2bn offer substantially to ensure victory. Under takeover rules, Granada has until Tuesday to make up its mind and the board will meet to take a final decision tomorrow.

The growing prospect of Granada throwing in the towel at the eleventh hour would represent one of the most dramatic turnarounds in corporate takeover history.

Most observers felt Granada had landed a knockout blow last month when its surprise bid caught Forte's executive chairman, Sir Rocco Forte, off guard on a Yorkshire grouse moor.

The consensus view in the City is that Granada will still probably lift its bid on Tuesday, but it has now become a much closer call. The Granada camp insists that it will not overpay for Forte.

Granada's chief executive, Gerry Robinson, was thought to be confident until last week that he would only have to tweak his 322p-per-share offer to seal Forte's fate.

But a robust defence mounted by Forte - involving the conditional sale of its Little Chef and Happy Eater roadside restaurants to Whitbread for pounds 1bn, an pounds 800m share buy-back, and the promise of a 20 per cent increase in dividends over the next three years - appears to have turned the tables on Granada.

By Friday, Granada was already on the back foot, ruling out any plans to fund a much higher offer for Forte by selling its 11 per cent stake in BSkyB, the satellite television broadcaster, which is worth about pounds 700m.

Spirits in the Granada camp were clearly sinking as they considered all the options during frantic last-minute talks.

Discussions centered on attempts to woo the Council of Forte, the body that safeguards Forte trust shares and has a majority of the voting rights, even though it has only a fraction of the ordinary shares.

Granada is conducting the talks through Lazards, its financial adviser, while the council is being advised by Hambros.

Agreement with the council would be essential before Granada could raise its offer to Forte's ordinary shareholders.

Granada is trying to reach a deal that would either put a price on the trust's shares or secure the council's neutrality. However, time is very short. "Granada wants a decision before the weekend is out," said a source close to the talks.

It was also suggested that failure to secure the council's agreement would provide Mr Robinson with a convenient fig-leaf to hide his embarrassment should he have to walk away from Forte.

That possibility loomed larger this weekend as analysts agreed that the current offer of 322p in cash and 328p in shares and cash had no chance of succeeding.

Several leading brokers on Friday published research notes giving Forte a break-up value of at least 380p.

"The continued streamlining of Forte and the progressive recovery of the domestic and international hotel markets together with the buyback suggest that the shares could reach 400p in 1996," wrote Julie Farrar of the Edinburgh-based investment house Sutherland & Partners.

The highly rated leisure team at Kleinwort Benson went further, saying Granada would not only have to raise its final offer close to the estimate 380p break-up value, but also provide "a more rational, detailed and credible set of plans for the whole of Forte if it is to prize investors away from the benefits" of the new-look company.