Daily Mail
IT IS not very often that a major corporate deal is completed in the quiet period between Christmas and New Year.
But at a time when the talk is of markets hitting new highs in London
and Tokyo and of the Square Mile's new millionaires, the £3.7bn
takeover of British hotel group Hilton International by the Hilton
Hotels Corporation looks like a fitting bookend.
Ending the divorce of the two Hiltons has always looked sensible in an
age of global markets. Although it is worth noting that for the last
eight years the groups have increasingly blended their marketing,
branding and reservation arrangements, in much the same way as global
airlines have come together through coding and frequent flying
partnerships.
HHC was always going to be the buyer of choice if Britain's Hilton
Group decided to offload its hotel arm and revert to Ladbrokes'
traditional strengths as a bookmaking and gaming company.
But in today's markets there is no such thing as a done deal.
Indeed, Hilton Group has recognised this with the promise of a break
fee of £37m, covering adviser costs, should anyone else decide to come
along and spoil the party.
That is not as preposterous as it may seem. Over the last couple of
years the hospitality industry has changed radically with new
financial, private equity and property players piling in. There has
been a recognition that hotels represent an important real estate play,
but also have the kind of cash flow which makes them attractive in
securitisation deals.
The allure of Hilton International to the American shareholders is easy
to see. It will allow it to provide more uniformity of branding, an
international element to its staffing and perhaps focus more closely on
the customer when other more financial players are more interested in
how much cash they can squeeze out.
Ladbrokes, the rump, has set itself up as if it has a real future as an
independent company, despite the recent revelation that there are
buyers sniffing around. The first decision it has to make is how much
of the £3.7bn from the hotel sales it should give back to investors,
after paying down the pension fund deficit as promised.
The newly constituted Ladbrokes board, headed by Sir Ian Robinson, with
Christopher Bell as chief executive, has a duty to look at all offers.
But there is also a case for taking stock and using some of the capital
from the hotels sale to invest in the gaming business. As we have seen
from the PartyGaming and other gambling floats, betting is a growth
business.
Unlike the newcomers, Ladbrokes has an unrivalled chain of retail
outlets, access to the best sporting locations in Britain and Europe,
and is the old dowager of the bookmaking industry. But it has also been
developing its online interest and its e-gaming poker site. This could
be heading for a £50m profit, ranking it among the best of the online
gaming opportunities.
An offer upwards of £4bn would be tempting to the new Ladbrokes board.
But long-term investors may well feel that Ladbrokes, without the
distraction of hotels, needs time to establish a new valuation. It
should not be rushed into an early sale.
