Whitbread is close to selling its David Lloyd leisure chain to private property company London & Regional for £920m. The two sides are working over the weekend in the hope of announcing a deal early this week.
The proceeds of the sale will be used to pay down debt and expand Whitbread's Premier Travel Inn chain, the UK's biggest hotel brand, as well as boosting its Costa coffee operation. Whitbread is in the running to acquire Jurys Inn, the Dublin-based hotels group and, if successful, these hotels will be rebranded under the Premier Travel Inn label.
Investors are unlikely to reap a significant capital return following the David Lloyd deal, a hallmark of previous transactions. In the last four years, Whitbread chief executive Alan Parker has handed back more than £1bn to shareholders after a streamlining programme that has seen the company sell its interests in Britvic, Pizza Hut and TGI Friday.
David Lloyd has been one of Britain's most successful business stories in the last decade. The chain has 325,000 British members in more than 60 clubs, while foreign membership is more than 20,000. David Lloyd was set up in 1982. Former tennis player Lloyd sold it to Whitbread for £182m in 1995 and was briefly on the board.
An analyst said the suggested sale price for David Lloyd would reflect well on management. One observer said: 'David Lloyd has been phenomenally successful for Whitbread, but it needs capital investment that Parker has earmarked for Costa and Premier Travel Inn.'
Whitbread also owns Brewers Fayre and the Beefeater restaurant chains, but Parker has never intimated that these businesses are for sale.
Some investors are hoping that the disposal of David Lloyd could open the way for a bid for Whitbread from rumoured predator Starwood Capital, the US private equity firm headed by Barry Sternlicht. The City believes that Sternlicht is stalking Whitbread and that he will pounce after the Lloyd sale. Since January, there has been constant speculation that Whitbread is facing a takeover with the shares soaring by as much as 11 per cent on a single day last month. On one occasion, the company felt obliged to tell the market that it knew of no reason why its shares were rising so sharply.
The prize for Sternlicht is the 470-strong Premier Travel Inn chain which has a large freehold property estate. Most of Costa's properties are also freehold. The business has been performing well over the last 18 months and Parker has announced plans to open 300 outlets in China over the next five years, as well as expanding in the UK in a bid to seize market share from Starbucks.
Whitbread recently revalued its hotel and restaurant properties at £3.6bn, which had not been reflected in the balance sheet. Christopher Rogers, finance director, ruled out sale and leasebacks on the properties saying Whitbread needed full ownership of its assets in order to develop them.
The properties were last valued in 1999 at £1.8bn, although the group has made a number of additions to its portfolio since. The extra debt will be raised by selling bonds secured on the hotel and restaurant assets.
London & Regional, which is in exclusive negotiations with Whitbread to buy David Lloyd, is run by brothers Ian and Richard Livingstone. L&R's website describes the company as one of the largest property groups in Europe with interests valued at more than €8.5bn in countries including Russia, South Africa, the UK, Germany and Poland.
