Shareholders hope for major sell-off at Granada Compass

Granada Compass shareholders are keeping up the pressure on the recently merged group to off-load its hotels business, including the tempting Le Méridien chain.

The city and investors reacted badly to news of the merger, asking why a pure catering company such as Compass would risk slowing its growth by taking on Granada's more volatile and cyclical hotels business. Compass shares slumped by 15% on the day of the announcement, prompting a round of visits by top executives to explain the link-up.

While the merged group is expected to dispose of its 79 Posthouse, 44 Heritage, and four London Signature hotels, it seems keen to retain the international Le Méridien chain of 127 hotels and more than 199 budget Travelodge hotels.

A spokesman said the company was not commenting on press speculation that included predictions that a £3b package including Posthouse, Heritage and Le Méridien could be put up for sale.

"Some shareholders are keen to dispose of more than just Posthouse, and are using the press to agitate," he said. The group has already indicated it could sell Posthouse for about £1b within 24 months of the merger.

David Michels, chief executive of Hilton International, recently said he would be interested if Le Méridien were put on the market. Other potential buyers include Whitbread, Accor, Hyatt and Marriott.

Peter Joseph, analyst at Peel Hunt, said the pressure was coming from Compass shareholders. But he did not expect the group to be intimidated: "Knowing the people, they won't be pressurised: they will do whatever makes commercial sense."

Lesley Ashplant, hospitality analyst at Price waterhouse Coopers, believed any disposals would have to wait until the time-consuming demerger of the media and hospitality groups was completed. She suspected this could take place shortly after the annual general meeting in late November.

In the meantime, the hospitality and media sides of the temporary Granada Compass group have already taken steps to mark their separation. All hospitality-related parts of the merged businesses are now under the Compass name, leaving the Granada name exclusively for the media interests.

A spokesman confirmed the two halves would be demerged within the next few months, but said that it made sense to start using the new name now to avoid confusing the market by changing names later.

"Granada Compass was always just a holding name. We never had any stationery printed with that," he said.

by Angela Frewin