Mark Stretton examines the fight for Six Continents' managed house business.
The gloves are well and truly off in the battle for Britain's biggest managed house business and round one definitely belongs to Hugh Osmond. Here the boxing analogies must end because this public "I want to buy it / we would like to keep it" spate is more akin to handbags at dawn.
In the past fortnight we have heard from Hugh Osmond about how rubbish Six Continents is. We have then, in turn, heard Six Continents declare Hugh Osmond's aspirations as fundamentally flawed.
Those "well informed sources" in the City say that, as this article was posted, Mr Osmond was poised to lodge a formal 650p-a-share offer for Six Continents, valuing the business at £7bn, including debt.
The tiff began shortly after Six Continents issued demerger details last month.
Hugh Osmond announced he intended to bid for the business, through cash shell Capital Management & Investment (CMI). The bid is to be based on unlocking value from 6C's $7.6bn-worth of assets "by a programme of asset sales, sale and leasebacks, securitisations, and other real estate financing techniques".
Finance director and hotels boss-in-waiting Richard North dismissed the approach has fundamentally flawed, as did the embattled chairman Sir Ian Prosser. Mr Osmond was heavily critical of the current management: "Six Continents is a very poorly-performing business that has consistently destroyed shareholder value. "If you look at the amount of capital it has invested the performance is appalling. All it's doing is splitting one poor management team that has delivered poor returns into two poor management teams. We believe shareholders deserve better." Ouch.
Six Continents hit back, claiming it had outperformed the FTSE 100 over the past one, two, three, five and 10 years in terms of total shareholder returns. It was then embarrassingly forced to retract its claim in respect of five and 10 years.
Then 6C announced that many of Mr Osmond's financing proposals were lifted from its own demerger documents. It said it would take $100m of costs out of the hotels division. The entire hotels sector was not at its best before September 11. After, it was absolutely decimated.
So, only now, 18 months later does 6C discover there is fat to taken out of the business to return to shareholders.
It also announced it would take on up to £1.5bn more debt in the 2,000-strong pub business despite last year saying this was not an option because of the desire to protect its AAA investment status. Concern about its investment grading appears to have gone out of the window.
Whether the company is fighting for survival is down to opinion. "I'm a little taken aback by the creditability that 6C has given Hugh Osmond," said one analyst. "In the past it would have arrogantly ignored this. Now the press office is releasing statements twice a day."
Hugh Osmond is a compelling character. He is almost a hero-like figure with a strong dislike for the establishment. Just as he was during the battle for the Allied pub estate, he has been labelled the David to Six Continents' Goliath - and everyone loves an under-dog (some Punch licensees think of him less fondly).
He has won the big battles before. Plus anyone who rates himself enough to use sayings such as "if in doubt, think big," or "decide quickly, use maximum force, do it today" without feeling mildly self-conscious must have an eye for this sort of thing.
The national press has heaped praise on him and marvelled at the creation of the £150m personal fortune. They have marvelled over the fact he is not a boring banker either, apparently making the most of his spare time. He "is an ace off-piste skier and a competitive squash player", according to certain newspapers. His billion or trillion-acre country estate has one of the finest pheasant shoots in the land - quite marvellous.
Mr Osmond undoubtedly created value for investors in Pizza Express and was well out of the picture when the growth story ended last year. But there is sneaking suspicion that he cares firstly for his own wealth and then secondly for that of his employers - shareholders. A sceptic would suggest Mr Osmond is doing this merely to bolster his own bank balance.
The revelation last week that the directors of CMI stand to bag £240m if it lands 6C did nothing to quell the view. The controversial pay package, which features "exploding warrants" entitles Osmond and four co-directors to 12 per cent of the company.
Advisors dismissed the scheme, saying it was historic and that a new incentive plan would be drawn up, similar to venture capital returns. But the damage was done. "The warrants thing has blown up his face," said another analyst close to the situation. "I don't think the idea of handing Osmond a few hundred million for simply turning up and buying an undervalued business really appealed to shareholders. He's lost a bit of credibility."
The fact is Mr Osmond remains a long shot. He does not have bundles of cash and if another buyer emerges that is prepared to line the pockets of 6C's shareholders with more money up front, Mr Osmond may have to whistle. The Punch entrepreneur must now table a very attractive offer to entice shareholders.
Analysts remain sceptical about Mr Osmond's chances of pulling it off. "I take my hat off to him," said one. "It took someone with real balls to kick this thing off. But there are others with more cash in hand. I think it will be a private equity buyer. Whether that is in conjunction with existing hotel and pub operators remains to be seen.
"It all depends on what Hugh does - if he tables a bid, it would be far too dangerous for other buyers to sit back and hope shareholders vote against it."
One thing that will prey on the minds of the Six Continents management is that 22 per cent of its shareholders are private individuals - people who don't necessarily buy and sell equities for a living. They could be more easily influenced.
If Mr Osmond does bid, others will follow, and all this will seem like a mildly entertaining under-card to the main prizefight.
Sir Ian on the defensive
Sir Ian Prosser (pictured), chairman of Six Continents, has not just fielded criticism from Hugh Osmond. He was accused by an angry shareholder of "ripping the heart out" of the pubs and hotels group at its annual meeting - when 6C unveiled demerger details.
Brian Wilson, a former executive with Six Continents' brewing division, Bass Brewers, claimed Mr Prosser had destroyed the company by selling so many parts of the business.
"Now we are faced with the dismemberment of what is left," said Mr Wilson.
"What a monument to your chairmanship - the destruction of one of the greatest companies in British history. Are you not just a tiny bit ashamed about this?" Mr Wilson accused the company of issuing "upbeat statements designed to mislead the simple-minded and to try to disguise an utter shambles".
Mr Prosser responded: "Am I ashamed of our strategy? No I am not. I think it was the right one and an appropriate one."