Inside Track by Peter Martin
Whitbread's share price ended the week on a 12 months high, having added 16.5p in the last two days of trading. The rise was put down to a growing belief in the City that Mitchells & Butlers is taking a hard look at its rival's pub restaurant business. It is no secret that M&B would love to add the 600 plus Beefeater and Brewers' Fayre sites to its own market-leading pub restaurants. The question has always been whether M&B's board was serious enough to follow it through with an approach. City speculators, it seems, now believe a deal could be on the cards. That confidence was supported by M&B's strong trading update on Thursday, when it revealed a 4% increase in like-for-likes across its estate in the first 16 weeks of its financial year, including a 4.7% gain in suburban sites and a 5% increase in food sales, resulting in further market share gains from competitors, including Whitbread. The intrigue will have grown over the weekend with press reports that Whitbread is in turn considering a £1bn bid for the Travelodge budget hotel chain to add to its existing, market-leading Premier Travel Inn brand. Is there a neat deal in the making? Premier Travel Inn is Whitbread's star performer by some way and would be the foundation of any future expansion plans that the company might have. It has already approached the Office of Fair Trading to obtain the competition regulator's view on a possible tie-up with Travelodge, according to The Sunday Times. Its pub restaurant division, in contrast, remains a challenge, despite possessing probably the market's best-positioned estate. Having ditched its Brewsters brand, it faces a long haul to re-invigorate large swathes of its estate - a move started by the introduction of a new unbranded and up-market country pub diner concept at the Ramblers' Rest, a former Out & Out pub in Chipstead, Surrey. M&B, of course, has the concepts - from Toby and Harvester to Vintage and Project 'S' - that could reposition the estate at a stroke. Coincidentally, the £1bn price tag on Travelodge is exactly the same as many would value Whitbread's pub restaurants. So Whitbread gets Travelodge and M&B takes Beefeater and Brewers' Fayre? The central services cost savings both would make would give them advantages over any private equity competitive bids. More importantly, a back-to-back deal could see M&B and Whitbread becoming partners in future developments - Whitbread providing the lodges, M&B the adjoining restaurants. The upsides for both are undoubtedly attractive. M&B is already working with Travelodge and would not be unhappy about ending its historic tie-up with Holiday Inn's Express lodge brand. Working with Premier Travel Inn would not be a problem, after all M&B's restaurant division already has a tie-up with Costa, another Whitbread brand, to supply coffee to bar-restaurant operations, such as All Bar One. In a year that promises to be a deal bonanza for the sector, this could be juiciest of them all. o Perhaps the biggest deal trend of 2006 will be a growth in trade sales. An earlier indicator that operators are willing to face up to private equity players, comes with the rumour that the final three bidders for the Tootsies diner chain are all trade buyers, with Gondola, owner of Pizza Express and ASK the short-head favourite. Also significant, is that pub and bar operators are said to be looking at restaurant deals as a hedge against dipping sales and profits that will come with a certain smoking ban.