Inside Track by Peter Martin
The big shock of the week was the news that Travelodge has been dropped from the bidding for Premier Lodge. Travelodge, or more precisely its private equity owner Permira, had been the red hot favourite to secure the 132-strong budget hotel operation currently being auctioned by the UK’s biggest managed pub operator, the Sprit Group. Just as significant was the confirmation that Bob Ivell, the former chairman of Scottish & Newcastle Retail who used to run Premier Lodge, had also failed to make the final bidding round. The last rounders are understood to be Whitbread, owner of the rival Travel Inn chain, private equity house Apax and Hugh Osmond’s Sun Capital. Ivell’s bid, backed by financiers PAI, was deemed "inappropriate", as his team had wanted to buy more than the nine pub restaurants offered in the deal. Significantly for other bidders not as close to the operation, the Ivell camp believes that it will be difficult to separate the Premier Lodge business from the pub restaurants that share many of the same sites - some are even in the same buildings - and that they would be more effectively run together. Other bidders appear not so concerned, although they will no doubt take note and have their lawyers draw up watertight contracts over demarcation lines and the control of the type and style of restaurant offered on site by Spirit, for example. Whitbread already runs Travel Inns alongside third party pub and restaurant operators, including Spirit. Apax is said no to want to have anything to do with restaurants, after its experiences with the Arbuckles chain. Even Travelodge is in the process of decoupling itself from the Little Chef roadside restaurant business. Apax and Hugh Osmond will, however, need a management team to run the business if they win, and Osmond, through recent deals such as buying the freehold of Center Parcs, has shown he may be more interested in the assets that their management. That means the door may still be open for Travelodge, and even the Ivell camp, to play role further down the line. As the original auction of the S&N pub estate last year, when Spirit inherited Premier Lodge, showed, investors are quite capable of changing horses mid-race. Although it maintained that buying Premier Lodge was not a "must have" and that it already had a strong organic development strategy in place, Travelodge was seen as wanting the deal more than the rest not least to strengthen its still struggling Travelodge business, bought 18 months ago from Compass. It was the bidder, apart from Whitbread, that would also benefit most from operational synergies of merging two businesses. It may well be looking for a route back in. Another point about Premier Lodge is the style of operation that the Ivell team created while at Scottish & Newcastle, which will be a factor for the likes of Apax possibly considering bringing in a conventional hotel operator as a partner. Premier Lodge is run much more like a casual restaurant business. Its approach to marketing, operational systems, low overheads and consumer focus is more aggressive than much of the hotel market is used to, as demonstrated by the reaction to the presentation from the brands director Richard Edwards at last September’s Budget Hotel Briefing Day run in London by Euromoney. The bottomline, however, is that Premier Lodge is a profitable, efficient business that it is well worth fighting over. This is particularly good news for Spirit, which can probably now expect to beat its target price of £600m. o Following on from all this, is the latest rumour to emerge about Whitbread. The speculation goes that if it isn’t interested in acquiring the pub restaurants alongside Premier Lodge, how long will it want to keep its own pub restaurant brands? The logic is that Whitbread will increasingly concentrate on developing as an international hotel and leisure player, taking its Travel Inn and David Lloyd businesses, as well as possibly Costa, to Europe and beyond. The departure of restaurants boss Bill Shannon might give it an early opportunity to sell off its Beefeater, Brewsters and Brewers Fayre estates, with Mitchells & Butlers topping the list of potential buyers. We will see.