No budget for change

Takeover talks between Whitbread and Travelodge failed this week, after a brief flurry of excitement that the sector was going to see its first big deal of the year. Price has been mooted as the most likely reason the deal stalled, with speculation suggesting Whitbread may have cut its offer price by as much as as a third in the latter stage of negotiations. This would bring the group into line with the current thinking of the sector's buyers, where the split between what asset owners think they should get for their properties and what buyers feel they should pay is widening. Sellers still see their assets as priced at the record levels of the previous few years, while buyers think they should be afforded a discount in recognition of the current liquidity crisis. Some observers have suggested that asset values may have fallen by as much as 15% in the past few months. However, with few sales to test the market, values remain apparently high. However, as with the majority of sellers in the current climate - in contrast with the last period of economic tension - Travelodge was not a distressed sale, it was never on the market at all. Whitbread has seemed to have issues with buying - although not selling - over the past year, having also been linked to last year's Esporta deal, which would have been a strong fit with its David Lloyd Leisure business. The last significant deal the group did with its Premier Inn business was the £44m acquisition of Golden Tulip UK last September. The deal comprised six hotels currently trading and a pipeline of nine further sites, adding 2,000 rooms to the portfolio. Travelodge is now in the strongest period of growth in its history, claiming the largest new hotel pipeline in the UK, a key attraction to Whitbread. After opening 23 hotels in 2007 Travelodge is planning an extra 4,000 rooms across the country this year. Of these, 24 hotels are already being built and planning permission has been secured on 42 new hotels. Expansion is set to continue abroad with Eu1bn committed to developing 100 Travelodge hotels in Spain by 2020. Grant Hearn, Travelodge's chief executive, said last week: "In the last three years Travelodge has focused on taking share from three and four star hotels but also growing the overall hotel market. "We are stealing share from B&Bs, mid market and upmarket hotels as their customers seek genuine value from the budget sector. "We are also now attracting 500,000 more low income families than in 2005, including first time users from camping and caravanning markets." Travelodge now has 330 hotels with around 22,000 rooms and is proving to be recession proof, reporting a 20% rise in revenues to £243.8m. However it was this stealing of market share which is also thought to have given Whitbread pause. The combined group could have been worth as much as £3bn and would dominate the UK budget hotel market, with around 56,000 rooms and 850 hotels. However, it's not only the competition regulators who will be happy to have avoided the extra workload. Given Whitbread's regular re-naming and re-branding of its budget business, the nation's logo designers must be relieved not to be spending Easter working the Travelodge name into the mix. Katherine Doggrell is editor of Hotel Report