16 February 2004 – The Times
The Billionaire brothers David and Simon Reuben have teamed up with Macdonald Hotels and the Bank of Scotland to make a £350 million bid for the UK arm of Queens Moat Houses, presaging a possible break-up of the debt-laden company, The Times has learnt.
It is also believed that Blackstone Group, the US investment firm that controls the Savoy Group, is among front-runners to acquire QMH’s German division after bidding about £125 million, while a number of Dutch financial institutions are vying for its hotels in the Netherlands.
The auction process is being handled by Morgan Stanley, the investment bank, which in December was appointed by QMH to canvass interest in its three divisions as part of a strategic review launched last summer. The review is being overseen by Steve Marshall, the former Railtrack chief executive who became chairman of Queens Moat in November.
The review is being conducted in tandem with negotiations over refinancing of QMH’s estimated £630 million of debt. In September the group was forced to ask for trading in its shares to be suspended because of the delay in reaching agreement with its lenders, stirring memories of a decade ago when the company came close to collapse after a previous suspension of its shares.
The Reuben brothers, who are being advised by Merrill Lynch, are bidding for 32 UK Moat House hotels through their Aldersgate Investments vehicle, which holds assets in the UK, Jersey and Monaco. Three other hotels are being sold separately. If the property and metal tycoons are successful, the hotels, which include Oakley Court in Windsor and the Holiday Inn, Newcastle upon Tyne, would be operated by Macdonald Hotels, the Scottish hotel company that was taken private last October in a £620 million deal backed by Bank of Scotland.
The Reubens’ consortium is expected to go through the second round of bidding, although there were claims last night that some offers were as high as £400 million. Other names mooted include Leo Noe’s REIT Group, which last summer bought 13 Swallow hotels from Whitbread for £52 million.
The issue for Queens Moat will be whether is can reap sufficient proceeds from a break-up to pay off its £630 million debts and have enough left over to make a payment to its shareholders. Although it has a net asset value of about £85 million, its equity value was just £33 million when the shares were suspended at 8 1/2p.
Some analysts believe that the company will do well to achieve its target of more than £700 million and that it may even struggle to reap sufficient proceeds to pay off its debts. The group’s debenture holders and junior debt providers, which between them account for the lion’s share of the £630 million of debt, have fallen out over the division of the spoils.
However, a source close to the process last night insisted the level of bids for all three divisions was “very encouraging in terms of quality and quantity” and that the signs were positive for “a strong competitive auction process”. The source reiterated that the sale of assets was “just one of several options” being looked.