14th Mar 2005 07:01
Whitbread PLC14 March 2005 14 March 2005 Whitbread to dispose of Marriott hotels Whitbread PLC announces its intention to exit from the operation and ownershipof its franchised Marriott hotels business. The company has agreed to form ajoint venture with Marriott through which it expects to realise at least £1bnover the next two years. Under the terms of the transaction Whitbread will receive an initial paymentfrom the joint venture of £710m on 5th May 2005. Of this sum £400m is to bereturned to shareholders; £100m will be used to reduce the company's pensionfund deficit; and the balance to pay down debt. The Board believes that this transaction fulfils the strategic objectivesoutlined in October 2004. It creates more value and realises more capital in ashorter time than the sale and manageback process that was previously announced.This transaction and the return of cash to shareholders improves Whitbread'sreturn on capital employed and enhances earnings per share on a pro forma basis. The structure of the transaction is as follows: • Establishment of a 50/50 joint venture with Marriott to hold the hotel properties until sold. • Marriott to operate the hotels under long-term management contracts while held by the joint venture and following their sale. • Whitbread Hotel Company employees to transfer to Marriott on establishment of the joint venture. • Whitbread to receive consideration of £710m in cash, 50% of the joint venture's ordinary and preferred share capital and deferred consideration dependent on final sales proceeds achieved by the joint venture. • Following completion, Whitbread will return £400m to its shareholders by way of a special dividend of 135 pence per share. • Joint venture to sell properties within 2 years to achieve maximum value and benefit from the current appetite for hotel property assets and the continued upturn in the hotel cycle. • Whitbread expects total proceeds of at least £1bn, which is in excess of the book value of the net assets and the goodwill. The sales value of the assets is enhanced by management contracts direct with Marriott. Alan Parker, Chief Executive of Whitbread PLC said: "Today's announcement substantially completes the reshaping of Whitbread for thefuture. Last year we invested £505m in acquiring Premier Lodge to create theclear leader in budget hotels, Premier Travel Inn. "We expect this transaction to realise at least £1bn over the next two yearsfrom a franchised business that, despite good management and operationalperformance, does not meet the Group's cost of capital requirements. "We have accelerated our return of £400m to shareholders. In addition, on thebasis of our current investment plans it is our intention to return at leasthalf of the proceeds arising from future asset sales announced to date. Thebalance will be used to reduce further our pension fund deficit and to pay downdebt. The method and amount of subsequent returns will be determined at thetime. "Following this transaction Whitbread has a strong platform to build on in thethree sectors of the leisure market where we have leading positions: budgethotels, restaurants, and health and fitness clubs. A strengthened managementteam is focused on disciplined growth and operational synergies to drivesustainable economic profit. " Edwin D. Fuller, president and managing director of Marriott Lodging-International, said: "We appreciate the strong partnership we have enjoyed with Whitbread as theMarriott brand has grown to pre-eminence throughout the UK. As Whitbread pursuesa new strategic direction, we in turn look forward to working with a highlyvalued team of dedicated associates and new growth from the superb platform ofhotels we have built together." Whitbread announces its full year results on 26 April 2005. Transaction Process and Timetable The transaction requires approval from Whitbread's shareholders. A circular containing further details of the transaction will be sent toWhitbread's shareholders shortly. Completion of the transaction is subject to a number of conditions, includingthe approval of shareholders, the finalisation of non-recourse debt facilitiesfor the joint venture and UK regulatory clearance. It is anticipated that completion will take place on 5th May 2005. A presentation for analysts will be held on 14 March 2005 at Deutsche Bank,Winchester House, 1 Great Winchester Street, London EC2N 2DB. Registration from9.00am, presentation at 9.30am. A live audiocast of the presentation, with accompanying slides, will beavailable on the investor relations section of the Whitbread website:www.whitbread.co.uk. For more information please contact: Investor Relations:Dan Waugh, Whitbread PLC +44 (0) 20 7806 5442; +44 (0) 7799 581763 (m) Press Contacts:Anna Glover, Whitbread PLC +44 (0) 20 7806 5419Julie Weldon, Whitbread PLC +44 (0) 20 7806 5436Andrew Grant, Tulchan +44 (0) 20 7353 4200June Farrell, Marriott +44 (0) 20 7591 1166 Morgan Stanley (Financial Advisers to Whitbread PLC)Brian Magnus +44 (0) 20 7425 5555 Deutsche Bank (Brokers to Whitbread PLC)Roger Aylard +44 (0) 20 7547 6855 Hoare Govett (Brokers to Whitbread PLC)Nigel Mills +44 (0) 20 7678 8000 Transaction Rationale and Background In its 2004 business review Whitbread's management set out its strategy toimprove the company's overall return on capital and deliver consistent growthfor shareholders. Whitbread set out ambitious growth and investment plans forits budget hotels, restaurants, and health and fitness clubs. Whitbread alsooutlined a programme of asset disposals. As a key part of this strategy, thetransaction represents a significant step for Whitbread and a major enhancementof the previously announced asset disposal programme. It crystallisessubstantial shareholder value and releases the capital within the Marriottsegment for return to shareholders, to pay down debt and reduce the pensiondeficit. The structure of the transaction enables Whitbread to benefit from an improvedMarriott UK sale process compared with the previously proposed sale andmanageback programmes. The transaction offers the benefit of accelerating therelease of capital to Whitbread with £710 million received initially and islikely to result in higher disposal proceeds overall. Sale prices are likely tobe enhanced compared with the original process because (i) no separate franchisefee will be paid under the new structure (ii) the simplified structure of asingle franchise owner/manager will improve investor perception and (iii) costsavings are expected to be generated from the combination with Marriott'sinfrastructure which will be captured in the hotels' disposal prices. Information on the Business Being Disposed Whitbread's existing Marriott hotel business In 1995 Whitbread entered into a franchise agreement with Marriott, one of theworld's biggest hotel brands, and since then grew its four-star hotel businessfrom 12 to 51 hotel assets. Historically the Marriott hotel business alsoincluded 13 three-star Swallow hotels, the disposal of which was announced on 25July 2003, as well as 11 three-star Courtyard by Marriott hotels, the disposalof which was announced on 11 November 2004. Whitbread's Marriott hotel business currently comprises 51 four-star hotelsoperated under Marriott brands(1), of which 50 are located in the UK and 1 islocated in Germany. 48 of those hotels are both owned and managed by Whitbreadand 3 are managed by Whitbread but owned by third parties. In addition,Whitbread's Marriott hotel business comprises 1 four-star hotel located in theUK, which is still under development and will be operated under the Marriottbrand. Note:1. 49 hotels operated under the Marriott brand (including Victoria & Albert), 2hotels operated under the Renaissance brand Whitbread's Marriott Current Post TransactionHotel Business Ownership Management Ownership Management Whitbread's Marriott Whitbread Marriotthotel managementbusiness Whitbread's hotel assets operated under the Marriott brand 46 hotels in the UK Whitbread Whitbread JV Marriott1 operating contract of a Leased by Whitbread Leased by Whitbreadhotel in the UK Victoria Whitbread Whitbread& Albert Total of 47 hotels 3 management contracts Third Whitbread Third To be discussed parties Parties with third-party owners1 hotel in Germany Whitbread Whitbread Whitbread Whitbread(Treudelberg 1 hotel under development Whitbread Whitbread Whitbread Whitbread(Leicester) Whitbread Hotel Company (1) assets not operated under the Marriott brand 1 banqueting & conference Whitbread Whitbread Whitbread Whitbreadcentre in the UK (Chiswell St) 1 hotel in the UK Whitbread Whitbread Whitbread Whitbread(Norwich Nelson) 46 four-star hotels operated under Marriott brands to be sold to the jointventure Under the terms of the transaction Whitbread will dispose of 46 of its 51four-star hotels it both owns and manages to the joint venture. Those hotels(the "Marriott Hotel Assets") together represent a total of 8,102 bedrooms andcomprise facilities such as restaurants, bars, leisure clubs and swimming pools,as well as modern and fully equipped meeting and conference facilities. Location / Type # of hotels # of roomsLondon (2) 6 1,586Regional 31 5,220Country Clubs 9 1,296Total 46 8,102 Notes:1. Whitbread Hotel Company is the entity which operates Whitbread's upscalehotel business2. Includes Heathrow Whitbread Hotel Company's management business to be transferred to Marriott Under the terms of the transaction Whitbread Hotel Company will transfer toMarriott Hotels Limited substantially all its management business, whichcurrently manages all of Whitbread Hotel Company's Marriott hotels. Thisbusiness employs approximately 8,200 people in the UK and provides the majorityof the services necessary for the operation of the hotels. The total business being disposed of in this transaction generated operatingprofit (pre-exceptionals) of £48.4 million(1) on revenues of £322.5 million andhad net assets of £934.2 million for the year ended 4 March, 2004. The Retained Assets The rest of the Marriott hotel business will be retained initially by Whitbreadand is not part of the transaction. This includes the 3 management contracts,the Chiswell Street banqueting and conference centre, the Norwich Nelson hotel,the Victoria & Albert hotel, the Treudelberg hotel and the Leicester hotelcurrently under development. Whitbread will discuss with the third party owners the 3 management contractswith a view to transferring them to Marriott Hotels Limited. It is also theintention of the management to dispose of the other assets in order to effect acomplete exit from the four-star hotel business. In addition to the value of themanagement contracts mentioned above, the retained assets had a net book valueof £75 million as of 4 March, 2004. Transaction Description The main elements of the transaction are as follows: • Whitbread and Marriott have established a 50/50 joint venture which will acquire the Marriott Hotel Assets. The consideration for the acquisition will be the payment of £710 million in cash to Whitbread and the issue of ordinary and preference shares in the joint venture upon completion. These shares will carry fixed returns and an entitlement to deferred consideration based on the proceeds of future sales of Marriott Hotel Assets by the joint venture on the basis described below. • The cash consideration will be funded by the joint venture through £620 million of non-recourse debt and aggregate cash subscriptions of £90 million by Marriott for ordinary and preference shares. Note:1. Exceptional item was £9.5 million charge for goodwill impairment • Following completion, the Marriott Hotel Assets will be managed by Marriott Hotels Limited under management agreements. The joint venture will seek to sell the Marriott Hotel Assets to third parties through one or more transactions. Sales will be on the basis that the Marriott Hotel Assets continue to be managed by Marriott under long term management agreements. • Whitbread and Marriott have agreed the basis on which sales of the Marriott Hotel Assets will be conducted. The sales process will be managed by a steering committee of the board of the joint venture with equal representation for Whitbread and Marriott. • Whitbread has given certain warranties and indemnities to the joint venture. In addition, Whitbread has agreed to pay a termination fee of £10 million to Marriott if Whitbread's Board withdraws its recommendation or a competing transaction successfully completes. The proceeds of sales of Marriott Hotel Assets by the joint venture and anysurplus cash flow generated by the joint venture will be distributed on thefollowing basis: (A) first, to repay outstanding indebtedness of the joint venture; (B) second, to redeem Marriott's preference shares for £70 million plus accrueddividends of 10% per annum; (C) third, to redeem Whitbread's preference shares for £70 million plus accrueddividends of 10% per annum; (D) fourth, to redeem an equal number of Whitbread and Marriott's ordinaryshares to ensure that, at the time of such redemption, each of Whitbread andMarriott receive a fixed return of 15% per annum on the £20 million nominalvalue of each of their ordinary shares; (E) fifth, to pay Whitbread's entitlement to deferred consideration of £195.3million plus accrued return of 5% per annum; and (F) sixth, all remaining amounts to be split equally between Whitbread andMarriott by way of dividends on or redemptions of their ordinary shares. Use of Proceeds As previously stated Whitbread remains committed to returning surplus cash toits shareholders. Following receipt of the initial consideration of £710 millionit is the Board's intention to return £400 million to shareholders as describedbelow. Of the balance Whitbread intends to contribute £100 million into itspension fund in line with its policy of reducing the current deficit over time.The balance of the initial consideration will be used to reduce groupindebtedness. The Board intends to return cash to shareholders by way of a special dividend.There are currently approximately 296 million Whitbread ordinary shares in issueand the return of approximately £400 million will therefore be made by way of aspecial dividend of 135 pence per existing ordinary share. The board isproposing to pay the special dividend to shareholders in May 2005. In order to maintain the comparability of Whitbread's share price and earningsand dividends per share before and after payment of the special dividend, theboard will also seek shareholder approval to implement a share consolidation ofWhitbread's issued share capital. The share consolidation will also have theeffect of maintaining the position of holders of options under the variousWhitbread share option schemes. The further details of the proposed shareconsolidation will be contained in the circular convening the extraordinarygeneral meeting. Transaction Financial impact In line with the Board's strategy this transaction will improve the overallreturn on capital of Whitbread and will, combined with the special dividend andthe share consolidation, enhance earnings per share on a pro forma basis. Neither Whitbread nor Marriott intend to consolidate the joint venture. NOTE TO EDITORS: About Whitbread Whitbread PLC is the UK's leading hospitality company, managing market leadingbusinesses in the hotels, restaurant and health and fitness sectors, includingPremier Travel Inn, Brewers Fayre, Beefeater, Costa, T.G.I. Friday's and DavidLloyd Leisure, and a strategic investment in Pizza Hut (UK). Whitbread'sstrategy is to create value for our shareholders by focusing investment andgrowing in expanding sectors of the hospitality industry, primarily in the UKbut also in selected markets. In the financial year to March 4, 2004, Whitbreadgenerated pre-tax, pre-exceptional profit of £240.8m on sales of more than£1.8bn. Founded in 1742, the company is listed on the London Stock Exchange (asWTB.L) and is a member of the FTSE 100 and FTSE4Good indices. About Marriott Marriott , INC. (NYSE:MAR) is a leading lodging company with over 2,600 lodgingproperties in the United States and 65 other countries and territories. Marriottoperates and franchises hotels under the Marriott, JW Marriott, TheRitz-Carlton, Renaissance, Residence Inn, Courtyard, TownePlace Suites,Fairfield Inn, SpringHill Suites and Bulgari brand names; develops and operatesvacation ownership resorts under the Marriott Vacation Club , Horizons, TheRitz-Carlton Club and Marriott Grand Residence Club brands; operates MarriottExecutive Apartments; provides furnished corporate housing through its MarriottExecuStay division; and operates conference centers. Marriott is also in thesynthetic fuel business. The company is headquartered in Washington, D.C., andhas approximately 133,000 employees. In fiscal year 2004, Marriott reportedsales from continuing operations of $10 billion. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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