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Greenalls sells pubs
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September 14, 1999: 7:22 a.m. ET
Scottish & Newcastle buys U.K. company's 779 pubs for $1.8B
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LONDON (CNNfn) - Greenalls agreed Tuesday to sell its pubs and restaurants to domestic rival Scottish & Newcastle for 1.14 billion pounds ($1.8 billion), completing a decade-long transition from brewer to hospitality and health-club company.
Greenalls now plans to focus on its chain of hotels, mainly under the De Vere brand.
The companies confirmed they were in talks concerning the unit more than a week ago. The deal marks the latest shake-up in Britain's pub sector, which has seen thousands of drinking houses change hands in recent years.
The deal promises to fuel speculation that Whitbread, a rival leisure company that failed this summer to secure Allied Domecq's 3,500 pubs, could make a bid for Greenalls' hotels and pubs company, Swallow Group.
Whitbread is said to be eager to build upon its 36-strong chain of Marriott Hotels in Britain.
Colin Davies, a spirits analyst with Goldman Sachs in London, said the sale seemed to underscore a growing trend in the leisure sector towards a narrower focus on individual brands as companies strive for greater economies of scale.
For Greenalls, that means a shift away from its original vocation as a brewer, which it abandoned in 1989, toward a narrower focus on hospitality. Greenalls sold off its franchised pubs earlier this year, though a profit plunge in May and a profit warning in July left the company scrambling to further refine its strategy.
"Historically, it's been a fairly homogeneous industry, but increasingly it's becoming branded," said Davies, noting that the pubs sector had been suffering from overcapacity.
"As a pub operator, you either got to be large or you got to be really focused," he said. "In most industries, you don't want to be in the middle realm."
Greenalls said it plans to return about 430 million pounds ($694.19 million) to shareholders following the sale, equal to about 160 pence per share.
That will help make up for the poor stock market performance of the company, which closed Monday in London at 368 pence, about 15 percent off its high for the past year. The stock was down 0.82 percent at midday Tuesday in London.
Paying down a large debt
The remainder of the proceeds from the sale will be used to pay down the company's hefty debt and to further develop its health and fitness clubs through a chain of stand-alone branded clubs.
The businesses Greenalls is selling to Scottish & Newcastle consist of 779 managed pubs and restaurants and 61 lodges, in addition to several unlicensed properties. More than half of the pubs are located in northwest England.
The businesses being disposed of collectively generated an operating profit of 102 million pounds ($164.67 million) last year. The businesses had net assets of 894 million pounds.
After the sale, Greenalls' principal businesses will be its 17 four- and five-star De Vere Hotels, its 10 Village Leisure hotels and the new Greens Health & Fitness club, launched in Cambridge, England in July.
The company said it is also eyeing near-term acquisitions and development of existing properties.
Market speculation in recent months has indicated that a bidder for Greenalls' hotels, such as Whitbread, could also appear.
Scottish & Newcastle, Britain's largest brewer, runs more than 2,600 so-called "tied" pubs in the U.K. under names such as Rat & Parrot, Chef & Brewer, and Old Orleans. A tied pub is obligated to sell certain company beers and is restricted in what other brands of beer it may serve.
Scottish & Newcastle reported revenue of $5.6 billion last year.
-- from staff and wire reports
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Scottish & Newcastle
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