DAVID Michels said the lunch at which he and Peter Georgethrashedout the principles of Ladbroke's takeover of the Stakis grouptowardsthe end of last year was cheap, long and on neutral ground at aForterestaurant.
Mr George, the chief executive of Ladbroke, picked up the tab onthat occasion and has now done the same again, paying GBP 1.2billionfor Stakis in cash and shares, an important element for Mr Michelssince Stakis' shareholders will retain a share of any upside fromthedeal. That upside could be considerable.
Aside from the basic cost savings from the closure of Stakis'Glasgow head office and the integration of marketing and supportservices, estimated to be worth GBP 16 million per year, there willalso be significant savings from systems, purchasing and, inparticular, marketing.In the latter area, Hilton's global reservation system will nowoffer a larger choice of outlets, particularly in Scotland.A combination of Stakis and Ladbroke, with their complementarygeographical and operational fit, has made business sense for a longtime and Ladbroke has been watching the Glasgow group, run by itsformer employee Mr Michels, for some time.For his part Mr Michels has been talking to a lot of people in theindustry.But, as he put it: 'No one else wanted to get friendly and wasprepared to pay to do so.'Price, as always, was the key to the transaction and Mr Michelsand Robert Smith, who only became Stakis' chairman in October,succeeded in squeezing an acceptable deal from Ladbroke, achievingthe highest ever level for Stakis' shares compared with the group'snet asset value of GBP 703.5 million on 27 September last year.For its part, Stakis clearly had a vision of an independent futureand its attempts last year to buy Vaux, the operator of the SwallowHotel chain, and parts of the Thistle hotel network showed it wasprepared to flex its muscles.However, nothing came of those attempts and when Mr George cameknocking, Stakis found it impossible to resist the impeccablecommercial logic of a takeover deal at the price offered.The new structure will push Ladbroke's Hilton International hoteldivision into number two spot in Britain's hotel sector with 92hotels, behind Granada's Forte brand.It will also make it the largest four star hotel operator and thebiggest in the market for conference facilities.In gaming, the enlarged group's 27 casinos will vie with Rank forthe number one position, and are seen as being well placed in thecase of any future deregulation.LivingWell, its health club chain, can also expect to receivesignificant backing for its ambitions to expand into ContinentalEurope.Stakis made profits of GBP 69.4 million last year and the dealwill be earnings enhancing in the current year.Although Ladbroke will pay out GBP 457.9 million in cash and takeon Stakis' GBP 200 million of debt, the interest payments willremainwell covered by earnings.Peter George said: 'Putting these companies together, two plus twoequals a lot more than four.'If he pulls off the move successfully, and a rival bidder nowseems unlikely, it will finally mark a positive conclusion to a dealfor Mr George, who was first outbid for Inter-Continental Hotels byBass last year and was then forced by regulators to sell the Coralbetting shop chain.Analysts say the enlarging of the hotels business could also speedup the possibility of a reunification deal with Hilton in the US,where Ladbroke's does not have the rights to the brand.Ladbroke put the icing on the cake for the City yesterday byforecasting profits of GBP 276.9 million for 1998, up from the GBP226.3 million reported a year earlier.The company expects earnings per share to be ahead by 20.8 percent to 17.9p, and predicted a final payout of 4.64p.Ladbroke said the Hilton International division grew its profitsby 2 per cent to GBP 181 million, or 8 per cent at constant exchangerates, while betting and gaming profits - excluding Coral - soaredby23 per cent to GBP 136.5 million.
