Whitbread gives up Marriott hotels

Leisure group Whitbread said today that it was giving up control of its Marriott UK hotels in a deal that will raise at least £1bn (€1.43bn) over two years.

Whitbread has agreed to set up a joint venture with Marriott International, the US owner of the brand, which will hold the four-star and five-star hotels until they are sold.

Under the terms of the deal, it will put 46 hotels in the UK offering 8,102 rooms into the joint venture. Six are located in London, 31 in the regions and nine are classified as country clubs.

It will receive £710m (€1bn) this year with the balance of the transaction dependent on the proceeds of the final disposal of the hotels, which it has operated under a franchise agreement since 1995.

The move will see £400m (€572m) returned to shareholders via a special dividend and enables Whitbread to focus on the budget hotel sector, where its Premier Travel Inn chain leads the market with a 40% share.

Around £100m (€143m) will be spent by Whitbread on closing the gap in its pension fund and the rest of the cash will go towards repaying debt.

Whitbread said the hotels would now be operated by Marriott under long-term management contracts which would continue after the hotels are sold.

A two-year deadline has been set for their disposal as bosses are keen to “benefit from the current appetite for hotel property assets and the continued upturn in the hotel cycle”, Whitbread said in a statement today.

The deal comes less than a week after rival InterContinental Hotels revealed it was selling 73 hotels for £1bn (€1.43bn) to a consortium backed by the property investment arm of stockbroker Lehman Brothers.

Whitbread chief executive Alan Parker said: “Today’s announcement substantially completes the reshaping of Whitbread for the future.”

Until news of a deal emerged last week, analysts had expected Whitbread to sell and “manage back” only half of its Marriott properties rather than agree on their outright disposal.

However, Mr Parker said the decision to exit the upmarket hotels business was taken because it was considered too costly for the returns that were generated.

“Following this transaction Whitbread has a strong platform to build on in the three sectors of the leisure market where we have leading positions: budget hotels, restaurants, and health and fitness clubs,” he added.

Whitbread’s other brands include the Brewers Fayre and Beefeater pub chains and David Lloyd Leisure.

Edwin D Fuller, president and managing director of Marriott Lodging-International, said: “We appreciate the strong partnership we have enjoyed with Whitbread as the Marriott brand has grown to pre-eminence throughout the UK.”

The deal is expected to be completed by May 5 once shareholders have given their approval and regulatory clearance has been obtained.