• De Vere board backs AHG offer

The De Vere board has recommended an offer by an Alternative Hotel Group vehicle priced at 825p per share, valuing the share capital of the company at £723.5m.

But private equity firm Permira is still in the running, having already made a higher offer at 840p.

The current accepted offer can either look full or stingy depending on what metrics are used measure it. Valuing De Vere as a business sees a multiple of 14 times underlying historic EBITDA in 2005 or 11.5 times 2006 estimates, according to analysts at US investment bank Jefferies International.

But looked at as a property play – which is the background to the AHG team – the offer comes in at just a 5% premium to net asset value – and this is on a property valuation regarded as conservative.

AHG has created a new vehicle AHG Venice which is 50:50 owned by AHG and Uberior, the investment holding company of HBoS. Funds for the deal, which, including debt of £233m, has an economic value of £956m, are being provided via Bank of Scotland.

The biggest chunk of value at De Vere is its core brand which also generates the lion's share of EBITDA at £30.4m. But Village Leisure is much faster growing at, while contributing just £17.6m in EBITDA in 2005, is expected to grow to £27.7m by 2008, just shy of the £31.1m that the core brand is set to bring in by that point.

AHG said it sees a strong strategic fit between Verve Venues, the former Initial Style Conferences in bought in November 2005 for £325m, and De Vere. It added that it plans to roll out Village in line with current management's strategy.

It made a passing reference to the likelihood of De Vere benefiting from private ownership, a perhaps realistic assessment on the way the stock market values asset rich companies such as De Vere.

Permira has been pursing De Vere for a number of years and is not likely to give in easily to AHG's late entrance into the race. But it faces a number of challenges.

Obviously the board currently prefers the AHG and has already agreed to an inducement fee of £7.2m which is payable in the event that the De Vere directors withdraw recommendation or another offer is accepted by shareholders.

Further complicating matters is the involvement of house-builder Steve Morgan, De Vere's biggest shareholder with a 13.2% stake. AHG has agreed to sell him Carden Park in Cheshire for £42m.

Morgan's rather grand family home is adjacent to this hotel and he is keen to obtain ownership of the hotel to prevent further development on the site. Permira may have to agree a similar deal in order to woo him.

AHG has also already won over Trefick, Jack Petchey's investment vehicle, which holds just under 5% of De Vere's shares. Along with the stake held by management, the Greenall family and a few other smaller shareholders, this comprises the 20.1% of irrevocable undertakings supporting the AHG Venice offer.

Permira's partner in the bid is Tony Troy's Principal Hotels. This six-strong chain is backed by Royal Bank of Scotland, HBoS's arch rival. It is understood Permira is already in talks with RBS about buying the chain for around £300m. It could then be merged with De Vere were Permira to succeed in its bid.

A bid from Permira is thought likely within a fortnight. With NH Hoteles definitely out, only Starwood Capital and Delancey of the rumoured suitors have yet to declare their hand.

Share →