Granada faces growing doubts over Forte offer

MATHEW HORSMAN

and JOHN SHEPHERD

Doubts over Granada's ability to win the fight for Forte deepened yesterday, when a leading analyst said Granada would have to sweeten its offer drastically to around 380p a share to clinch the hostile battle.

According to informed sources, Granada is unwilling to bid much more than about 370p, and would be prepared to walk away rather than overpay.

Kleinwort Benson, which has one of the City's most respected leisure teams, said Forte had a break-up value of at least 380p a share. Granada "will need to produce a final offer increased to the region of our break- up value and a more rational, detailed and credible set of plans for the whole of Forte if it is to prise investors away".

Granada has until Tuesday to raise its bid. The initial offer is for four Granada shares and pounds 23.25 in cash for every 15 Forte shares, valuing the company at 329p a share based on Granada's close last night of 647p.

The takeover battle will help determine the future of the Savoy Group, in which Forte has a majority stake but only minority voting control. Speculation grew yesterday that the Wontner family, one of the controlling shareholders of the Savoy, could be willing to sell at the right price, fuelling rumours that the company could go to another buyer in the aftermath of the Granada bid.

According to Kleinwort Benson, Forte's offer of an pounds 800m share buy-back values Forte at 368p a share and would enhance the company's earnings per share in the year to January 1998.

Granada yesterday said it would make a final decision about an increased offer next week. The TV and leisure company is also expected to detail precisely how it intends to enhance Forte's profitability by at least pounds 100m a year through rebranding, cost-cutting, centralised purchasing of food and beverages and higher prices at Forte's hotels.

But analysts have challenged Granada's claims. "More than 60 per cent of demand for rooms at Posthouse comes from the wholesale market," an analyst said. "We are not talking about people booking a room for a night but about people booking thousands of nights. If you ask them to pay more they will tell you to sod off. They can easily take their business elsewhere."

Granada's institutional shareholders are said to be concerned about the prospect of a sharply higher offer, and many appear to prefer that the company either retire or make a separate bid for Forte's restaurants businesses, which Forte has agreed to sell for pounds 1.05bn to Whitbread. In the event of a higher offer for the assets, Forte and Whitbread would split the premium paid.

But Granada is believed to have ruled out such a separate offer, claiming that it wants both the restaurants and the hotels to achieve the economies of scale it has identified.

Analysts said yesterday that it was hard to see how Granada could justify a much higher offer, particularly as it has now ruled out using its 11 per cent stake in BSkyB, the satellite broadcaster, as leverage.

The bid battle will be decided largely by institutional shareholders. More than 40 per cent of Forte's shares are held by index funds, which stand to be the main beneficiary of the company's pounds 800m share buy-back plans. At Forte's minimum offer of 330p a share plus the 23p distribution of Savoy shares, the whole package is worth 368p per share.

The index funds will also be left with 80 per cent of their Forte shares, which are guaranteed to return dividend increases of 20 per cent in each of the next three years.