Serial entrepreneur tables £5.6bn bid to tempt Six Continents shareholders. By Mark Stretton.
After weeks of hot air, insults and derision, Hugh Osmond put his money where his mouth is this week and tabled a £5.6bn bid for Six Continents.
The initial bid from Mr Osmond, conducted through Capital Investment & Management provides Six Continents shareholders with two options to ponder.
Firstly, an all-paper bid swapping each Six Continents share for 36 new CMI shares or secondly, a mix of cash and paper - 157p per share plus 27 CMI shares.
Working with advisers Credit Suisse First Boston and Lehman Brothers, Mr Osmond was quickly on the offensive once again. "It is clear that Six Continents has persistently destroyed shareholder value over a prolonged period. Almost £6bn of investment has left operating profits lower than 10 years ago," he said.
"CMI's strategy addresses Six Continents' problems and is designed to realise maximum value for Six Continents' shareholders and do so quickly.
CMI's innovative bid structure secures this value for Six Continents' shareholders."
Mr Osmond said that the CMI management had a proven record of creating shareholder value. CMI claims it can realise more than £5bn through the sale and leaseback of Six Continents' property estate, valued at about £7.6bn. CMI would also sell its majority interest in Britvic, the soft drinks group.
Mr Osmond launched his hostile bid after abandoning talks with chief executive Tim Clarke and finance director Richard North. The 6C duo, who let's face it would be loathed to see Mr Osmond's bid succeed, said his proposals were lightweight and lacking detail. The fact that a bid would render them both redundant was not referred to.
But the growing suspicion that Mr Osmond is on the make was endorsed by the news he and his management team will take 20 per cent of any gains generated from the business by CMI. That would put them in line for £200m if they can push up the value of the business by £1bn. Nice work if you can get it. Mr Osmond is understood to have lined up a number of hotel operators including Hilton, Marriott and Starwood of the US, to take assets from the hotels business. Some parts of the business will be sold outright to these groups, others will be farmed out on management contracts.
The industry can be sure that those not already in Mr Osmond's loop will want a piece of the action and the bid is guaranteed to stir a string of other potential buyers into action.
Other would-be buyers eyeing the prize cannot afford to sit around in the hope that 6C shareholders vote against the deal. Backed by Halifax Bank of Scotland, Mr Osmond brings about £1.2bn to the deal and there may be private equity groups out there willing to deliver a lot more cash to shareholders up front. Cash is king and if so, Mr Osmond will lose.
Another spanner was thrown into the Six Continents works by The National Association of Pension Funds, which is telling members to vote against the demerger. Britain's biggest shareholder group says the performance targets in the pay scheme for 6C directors are too low and the payouts are too high. This will play directly into the hands of Mr Osmond.
His offer is conditional on the fact that the shareholder meetings are either not held or are adjourned for at least 65 days, or if the meetings are held, shareholders do not approve the demerger proposals.
As this article was posted, executive chairman Sir Ian Prosser was under growing pressure to step down. Mr Osmond has been fiercely critical of the top management and Mr Prosser may sacrifice himself in a hope to repel the bid.
It has also been reported that Richard North, who is in line to run the demerged hotels business, is under pressure to quit.
Six Continents shareholders are thought to be so divided over the bid from Mr Osmond that Mr Prosser has hired telephone-marketing firm Salisbury to sound out the hundreds of private shareholders that hold 22 per cent of shares, and therefore, the key.
There was no indication that Six Continents would not press ahead with plans to demerge its hotel business from its pubs arm. The hotels will be known as InterContinental Hotels and the pubs, which include brands like All Bar One, Ember Inns and Harvester, will be known as Mitchells & Butlers.
Shareholders are due to vote on the demerger proposals on March 12.
"Our message is simple," said Mr Osmond. "Vote down Six Continents' demerger. Accept CMI's better alternative. Realise the value in your business."
Osmond attacks
The Punch entrepreneur maintained his attack on the current Six Continents management. The bid proposals said: "Six Continents' managers have shown themselves to be poor operators, poor dealmakers and poor financiers."
Said Osmond: "It is clear that Six Continents has persistently destroyed shareholder value over a prolonged period. Almost £6bn of investment has left operating profits lower than 10 years ago."
The falling share price
According to CMI's bid offer, Six Continents shareprice has fallen 44 per cent over five years from 936p to 520p.
Six Continents closing share price on February 12 2003 was 520p.
The average price for Six Continents during the four weeks to 12 February was 499p - the same share price as on May 18 1987.
Since bid speculation first emerged the share price has soared.
The CMI offer
The CMI strategy for Six Continents is to maximise shareholder value and the return of cash by:
- Unlocking cash from Six Continents' huge fixed asset base of £7.6bn through a programme of sale and lease backs, securitisations and other secured real estate financing techniques
- Maximising the value of the operations of the component parts of the Hotel Business through arrangements with major international hotel operators, whether as partners, managers, lessees or buyers
- Maximising the value of the operations of the Retail Business based on the proven pub operating skills of the CMI team
- Disposing of non-core assets.
Pictured: Non-executive board member Roger Carr (left) and chief executive Tim Clarke of Six Continents.
Related articles:
Hugh Osmond unveils hostile 6C bid (3 March 2003)
Osmond in talks with 6C (27 February 2003)
6C pubs group to be renamed Mitchells & Butlers (10 February 2003)