RNS Number:7868S
Thistle Hotels PLC
12 March 2002
March 12, 2002
THISTLE HOTELS PLC
("THISTLE" OR THE "COMPANY")
Proposed Disposal of 31 Regional and
6 London Hotel Businesses (the "hotel businesses")
for £600 million
Transaction Highlights
Thistle announces that it has today reached agreement with Gamma Four Limited
(the "Acquirer"), a wholly-owned subsidiary of Euro & UK Property Limited (a
private venture capital company and the ultimate parent of the Orb group),
regarding the terms of the proposed disposal of a group of subsidiary companies
of Thistle which together own 37 Regional and London hotel businesses
(the "Disposal").
The principal features of the transaction are:
- Total payment to Thistle of £600.4 million, comprising £1 to be paid in cash
on completion by the Acquirer to Thistle for the shares in three companies (the
"Sale Companies") that own the hotels and carry on the Hotel Businesses, the
repayment on completion by certain of the Sale Companies and certain
subsidiaries of the Sale Companies of approximately £555.4 million in settlement
of outstanding inter-company indebtedness due to Thistle and £45 million payable
no later than 1 January 2005 pursuant to a loan note issued to Thistle by one of
the companies to be sold to the Acquirer.
- Upon completion of the Disposal, Thistle Hotels (Management) Limited, a
wholly-owned subsidiary of Thistle, will enter into agreements under which it
will undertake the ongoing management of each of the hotels for a period of 30
years from completion of the Disposal.
- A relationship agreement will be entered into between Thistle and the Orb
group which will contain, among other provisions, a guarantee by Thistle in
relation to the level of earnings before interest, tax, depreciation and
amortisation ("EBITDA") derived from the Hotel Businesses.
- The cash proceeds of the Disposal will amount to approximately £555.4 million,
before transaction costs, a working capital adjustment and the repayment to
Thistle of the loan note. No significant tax liability is expected to arise for
Thistle on the Disposal of the Hotel Businesses. £174.0 million of the net cash
proceeds will be applied in the first instance to repay Thistle's bank loans and
the balance of the proceeds will increase the Company's cash position by
approximately £381.2 million (before transaction costs), thereby providing
Thistle with greater resources to pursue potential strategic acquisition
opportunities for further growth and development.
- The 37 Hotel Businesses being disposed of comprise Thistle's Regional hotels,
excluding Thistle Heathrow and Thistle Edinburgh, and six London hotels.
- For the year ended 30 December 2001, the Hotel Businesses had turnover of
£140.8 million and operating profit of £42.1 million, after charging
depreciation and amortisation of £13.4 million (giving EBITDA of £55.5 million).
- Due to its size, completion of the Disposal requires the approval of Thistle's
shareholders. Irrevocable undertakings to approve the Disposal have been given
by shareholders representing approximately 59 per cent. of the issued ordinary
share capital of Thistle.
A circular will be posted to shareholders shortly setting out details of the
Disposal and convening an Extraordinary General Meeting to approve the Disposal.
The Disposal is expected to be completed following its approval at the
Extraordinary General Meeting.
Commenting on the Disposal, David Newbigging, Chairman of Thistle, said:
"This disposal represents a further significant step in the re-positioning of
the Company and both improves and rebalances Thistle's hotel portfolio. By
concentrating on delivering growth through our core hotel management business,
with a reduced emphasis on the capital intensive ownership of hotel properties,
we expect to benefit from increased operating flexibility. This transaction
significantly strengthens our balance sheet and leaves us well placed to pursue
potential strategic acquisition opportunities for further growth and
development, with the objective of delivering value to our shareholders and
improving the return on shareholders' equity."
Ian Burke, Thistle's Chief Executive Officer, added:
"The Board believes there will be opportunities for the continuing Thistle group
to develop its hotel business. Over the course of the current financial year the
Board's focus will continue to be on managing the business efficiently,
improving operational cash flow generation and seeking opportunities to improve
the return on shareholders' equity."
The Chairman of Orb Estates Plc, Samuel Nolan, commented:
"We are particularly pleased to have become involved with Thistle Hotels and to
have been part of such an innovative restructuring process."
Enquiries:
Thistle Hotels Plc Tel: 020 7895 2304
Ian Burke, Chief Executive Officer
Ian Durant, Finance Director
Merrill Lynch Tel: 020 7628 1000
Simon Mackenzie-Smith
Richard Nourse
Deutsche Bank Tel: 020 7547 6925
Charles Wilkinson
Hogarth Partnership Limited Tel: 020 7357 9477
Nick Denton / Chelsea Hayes
An analysts' conference call will be held at 10.00 am today. To access please
dial 020 8240 8248 or contact the Hogarth Partnership.
This summary should be read with the full text of the attached announcement.
NOTES TO EDITORS
Thistle is the largest hotel group in London with 22 hotels in prime locations
throughout the capital and has hotels in key regional cities of England,
Scotland and Wales.
There are 56 hotels in the group, of which 55 are owned and 1 is managed. There
are a total of 10,727 bedrooms, of which 70 rooms are managed. In London,
Thistle has 6,014 rooms in 22 hotels and, in the regions, 4,713 rooms in 34
hotels (including 70 rooms in Thistle Poole under management).
Thistle's London hotels include the Thistle Tower, the Thistle Charing Cross,
the Thistle Marble Arch, the Thistle City Barbican, the Thistle Victoria and The
Royal Horseguards. Thistle has hotels in Aberdeen, Bristol, Birmingham,
Cardiff, Edinburgh, Glasgow, Liverpool, Manchester and Newcastle among other
regional centres as well as hotels at airports in Aberdeen, East Midlands,
Gatwick, Heathrow, Luton and Manchester.
Merrill Lynch International is acting for Thistle and no one else in connection
with the proposals described in this press release and will not be responsible
to anyone else for providing the protections afforded to the clients of Merrill
Lynch International nor for providing advice in relation to such proposals.
THISTLE HOTELS PLC
("THISTLE" OR THE "COMPANY")
Proposed Disposal of 31 Regional and
6 London Hotel businesses (the "hotel businesses")
for £600 million
Introduction
Thistle announces that it has today reached agreement with Gamma Four Limited
(the "Acquirer") regarding the terms of the proposed disposal of a group of
subsidiary companies of Thistle which together own 37 Regional and London hotel
businesses in return for a total payment of £600.4 million, including the
settlement of inter-company indebtedness (the "Disposal"). The Acquirer, which
is a wholly-owned subsidiary of Euro & UK Property Limited (a private venture
capital company and the ultimate parent of the Orb group), will acquire the
shares in the relevant companies and will assume the liabilities of the
companies being sold. The constituent elements of the total amount to be paid to
Thistle comprise:
(a) £1 to be paid in cash by the Acquirer to Thistle for the shares in the
three companies, London Park Hotels Limited, Exitcluster Limited and Kingsmead
Hotels Limited, (the "Sale Companies") that either directly, or indirectly
through certain wholly-owned subsidiaries, own the hotels and carry on the Hotel
Businesses which are being disposed of;
(b) the repayment by certain of the Sale Companies and certain subsidiaries of
the Sale Companies of approximately £555.4 million in settlement of outstanding
inter-company indebtedness due to Thistle; and
(c) £45 million payable pursuant to a loan note issued to Thistle by LPH
London Park Limited, one of the companies to be sold to the Acquirer as part of
the proposed transaction.
The £1 payable for the shares in the Sale Companies and the £555.4 million
payable to settle the outstanding inter-company indebtedness are to be paid to
Thistle immediately upon completion of the Disposal. In addition, there will be
a pound for pound payment for the actual working capital (excess, or deficit, of
current assets over current liabilities) in the Hotel Businesses at completion.
The loan note is to remain outstanding and will be redeemed no later than 1
January 2005.
Upon completion of the Disposal, Thistle Hotels (Management) Limited, a
wholly-owned subsidiary of Thistle, will enter into agreements under which it
will undertake the ongoing management of each of the hotels for a period of 30
years from completion of the Disposal. In addition, a relationship agreement
will be entered into to govern the relationship between Thistle and the Orb
group. This agreement will contain, among other provisions, a guarantee by
Thistle in relation to the level of earnings before interest, tax, depreciation
and amortisation ("EBITDA") derived from the Hotel Businesses.
Completion of the Disposal is, because of its size, conditional on the approval
of Thistle's shareholders. Thistle's two largest shareholders have given
irrevocable undertakings to the Acquirer to vote in favour of the Disposal. A
circular convening an Extraordinary General Meeting ("EGM") to seek approval for
the Disposal will be posted shortly to Thistle shareholders.
The Disposal is expected to be completed following its approval at the EGM.
Background to and reasons for the Disposal
During 2001 Thistle completed a three-year major upgrade programme positioning
the Company as a leading full-service hotel group and improving its comparative
position. This programme has resulted in a continuation of improvements in
Thistle's ranking as a brand in the UK hotel market. In December 2001, Thistle
sold its Poole hotel business to Orb Estates Plc, a privately owned, UK-based
property company within the Orb group, and now manages that hotel under an
operating agreement.
The Disposal represents a further significant step in the re-positioning of the
Company and both improves and rebalances Thistle's hotel portfolio. By
concentrating on delivering growth through its core hotel management business,
with a reduced emphasis on the capital intensive ownership of hotel properties,
Thistle expects to benefit from increased operating flexibility.
The Board believes that the terms of the Disposal reflect the value and
prospects of the Hotel Businesses which are the subject of the Disposal.
The net cash proceeds of the Disposal will be applied in the first instance to
repay Thistle's bank loans and the balance of the proceeds will increase the
Company's cash position, thereby strengthening Thistle's balance sheet. This
will provide the Company with greater resources to pursue potential strategic
acquisition opportunities for further growth and development with the objective
of delivering value to its shareholders and improving the return on
shareholders' equity.
Information on the Hotel Businesses
The Hotel Businesses comprise Thistle's Regional hotels, excluding Thistle
Heathrow and Thistle Edinburgh, and six London hotels. The six hotels in London
are Thistle Lancaster Gate, Thistle Bloomsbury, Hendon Hall, Cannizaro House,
Thistle Kensington Park and Thistle Kensington Palace.
For the year ended 30 December 2001, the Hotel Businesses had turnover of £140.8
million and operating profit of £42.1 million, after charging depreciation and
amortisation of £13.4 million (giving EBITDA of £55.5 million). As at 30
December 2001 the net assets of the Hotel Businesses were £609.7 million.
Principal terms and conditions of the Disposal
The Disposal is to be effected pursuant to a share sale agreement dated 12 March
2002 which provides for the sale to the Acquirer of all of the shares held by
Thistle in each of the three Sale Companies which own directly or indirectly the
hotels and carry on the Hotel Businesses (the "Share Sale Agreement"). Euro & UK
Property Limited, a private venture capital company which is the ultimate parent
company of the Orb group, and Orb Estates Plc have agreed to guarantee, on a
joint and several basis, the obligations of the Acquirer under the Share Sale
Agreement and other documents entered into by it in connection with the
Disposal.
The total initial payment to be made to Thistle under the Share Sale Agreement
will comprise: (a) £1 to be paid in cash by the Acquirer to Thistle for the
shares in the Sale Companies; and (b) the repayment by certain of the Sale
Companies and certain subsidiaries of the Sale Companies to Thistle of
approximately £555.4 million in settlement of the outstanding inter-company
indebtedness due from them to Thistle. The Share Sale Agreement also provides
that there will be a pound for pound payment between Thistle and the Acquirer in
respect of the working capital employed in the Hotel Businesses as at completion
of the Disposal which, if negative, would result in a payment by Thistle to the
Acquirer.
In addition, one of the companies being disposed of, LPH London Park Limited,
has issued to Thistle a £45 million interest-bearing loan note with a coupon of
5 per cent. per annum which is to remain outstanding and is to be redeemed no
later than 1 January 2005. The obligations of LPH London Park Limited under this
loan note will be guaranteed by the Acquirer, Euro & UK Property Limited and Orb
Estates Plc with effect from completion of the Disposal. Thistle will be granted
a second ranking charge over the shares in Hotel Portfolio II (Jersey) Limited,
a Jersey incorporated company within the Orb group, by way of security for the
guarantee obligations in respect of the loan note. Thistle's rights in respect
of this second ranking charge are fully subordinated to those of Morgan Stanley
Dean Witter Bank Limited, the provider of debt finance to the Orb group in
connection with the Disposal, and accordingly there can be no certainty that
Thistle will ultimately realise the full value of the loan note.
Completion of the Disposal is conditional only upon the approval of the
shareholders of Thistle and upon neither Thistle nor any relevant member of the
Sale Companies and their respective subsidiary undertakings being the subject of
certain insolvency events in the period prior to completion. All documents
required to effect completion have been executed and, together with the monies
payable at completion in connection with the Disposal, have been placed into
escrow pursuant to the terms of an escrow agreement entered into between, among
others, Thistle, the Acquirer and the escrow agent. It is expected that the
relevant documents and monies will be released from escrow in accordance with
the terms of the escrow agreement following the EGM.
Upon completion of the Disposal, Thistle Hotels (Management) Limited, Thistle
and Hotel Portfolio II UK Limited, a wholly-owned subsidiary of Euro & UK
Property Limited, will enter into separate operating agreements on arm's length
terms for the ongoing management of each of the hotels by the Thistle group for
a period of 30 years from completion of the Disposal.
Thistle Hotels (Management) Limited, Thistle and Hotel Portfolio II UK Limited
will also enter into a relationship agreement which will govern certain aspects
of the relationship between the continuing Thistle group and Hotel Portfolio II
UK Limited. In particular, the relationship agreement will contain a guarantee
by Thistle in favour of Hotel Portfolio II UK Limited in relation to the level
of EBITDA derived from the Hotel Businesses, in accordance with the terms of the
operating agreements, in each of the ten years following completion of the
Disposal. Under this guarantee, the minimum EBITDA guaranteed by Thistle in any
one year cannot exceed £45 million and Thistle's maximum aggregate liability
over the whole term of the guarantee is capped at £90 million.
Irrevocable undertakings to vote in favour of the Disposal
Thistle's two largest shareholders, BIL International Limited and Government of
Singapore Investment Corporation Pte Limited, have provided the Acquirer with
irrevocable undertakings to vote in favour of the Disposal in respect of their
entire holdings of ordinary shares in Thistle, representing in aggregate
approximately 59 per cent. of the issued ordinary share capital of the Company.
Financial effects of the Disposal
The cash proceeds of the Disposal will amount to approximately £555.4 million,
before expected transaction costs of £3.5 million, a working capital adjustment
and the repayment to Thistle of a loan note issued by LPH London Park Limited
amounting to £45 million. No significant tax liability is expected to arise for
Thistle on the Disposal of the Hotel Businesses. The net cash proceeds of the
Disposal will be applied in the first instance to repay Thistle's bank loans of
£174.0 million with the balance of the proceeds increasing the Company's cash
position by approximately £381.2 million (before transaction costs). With pro
forma net cash of £380.0 million as at 30 December 2001, Thistle will have
greater resources to pursue potential strategic acquisition opportunities for
further growth and development.
Based on the net assets of the Hotel Businesses as at 30 December 2001, namely
£609.7 million, the net loss on disposal is £13.0 million. However, the net
assets on completion will be less than £609.7 million because of the adoption of
FRS 19 "Deferred taxation" (which requires the provisioning for deferred
taxation in full) and depreciation up to completion. Accordingly, an actual net
profit on disposal will be recorded and disclosed as an exceptional item during
the financial year ending 29 December 2002.
Current trading and prospects
The following statement is set out in Thistle's unaudited preliminary results
for the year ended 30 December 2001, announced by the Board on 4 March 2002:
"Over the first eight weeks of the current financial year, turnover was down
some 10 per cent. on the comparative period last year with a greater decrease in
London against a strong comparative period in the early months of 2001. However,
turnover over this eight week period is broadly in line with the same period in
2000. We intend to actively manage our costs, with a focus on reducing our cash
operating expenditures and capital expenditures in 2002, as compared to 2001."
The Board believes there will be opportunities for the continuing Thistle group
to develop its hotel business. Over the course of the current financial year the
Board's focus will continue to be on managing the business efficiently,
improving operational cash flow generation and seeking opportunities to improve
the return on shareholders' equity.
Management and employees
Each of Thistle and the Orb group attaches importance to retaining the skills
and experience of the management and employees of the Hotel Businesses. Although
the general managers of the hotels will continue to be employed by Thistle, the
remaining management and employees of the Hotel Businesses will become employees
of the Orb group following completion of the Disposal.
Extraordinary General Meeting
A circular containing further details of the proposed Disposal and convening an
Extraordinary General Meeting to approve the Disposal will be posted to Thistle
shareholders shortly.
END
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