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Tuesday, September 14, 1999 Published at 09:42 GMT 10:42 UK

Business: The Company File

Greenalls pubs go Scottish

Greenalls is reinventing itself as a hotel based group

The rapid shake up in the UK hotels and pubs industry has taken a fresh step forward with the sale of Greenalls' pubs and restaurants to Scottish & Newcastle Breweries for £1.1bn.

The deal, involving 770 pubs and 69 budget lodges, leaves Greenalls to focus its resources on its De Vere and Village Leisure hotel concepts.

The sale is expected to lead to a new round of deals in the swiftly consolidating hotels and pubs sector.

Whitbread, stung by its failure to beat Punch Taverns to Allied Domecq's 3,500-pub estate this summer, may cast an eye over Greenalls' remaining hotels.

Greenalls said it plans to return approximately £430m to ordinary shareholders, equivalent to 160p per share.

Geographic logic

Greenalls has been through some difficult times in recent years.

Although it sold off its tenanted pubs earlier this year, it still looked to be struggling with a sharp profits fall reported in May. This was followed by a profits warning in July.

Analysts saw it as a good deal for Scottish & Newcastle (S&N), which is picking up 779 managed pubs and pub restaurants, 42 tenanted pubs and 61 budget hotel lodges, mainly in the North West of England.

The acquired outlets made a profit of £102m on sales of £416m in the year to 25 September 1998.

S&N said it hoped to cut £25m of costs within a year. The combination with Scottish's existing pubs estate will make a good geographic fit, but S&N - strong in Scotland, North East England and London - will have to sell off a number of pubs or free them from beer supply ties.

It owns some 2,650 pubs and is legally prevented from having a beer supply agreement with more than 2,739.

Board shake-up

Many analysts now expect it to sell off its poorer performing pubs.

Scottish aims to increase its managed pubs estate to 2,350 from 1,950, with two-thirds of the estate branded under chains such as Chef & Brewer, Rat & Parrot and Barras, by 2001.

Greenalls' managed pubs like Henry's cafe bars, Millers' Kitchens and Squares bars would help reach that target.

The sale will turn Greenalls into a focused hotel and leisure business. Chairman Andrew Thomas and Finance Director Alan Rothwell will be leaving the slimmed-down company. Lord Daresbury will become non-executive chairman.

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