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Wednesday, 17 May, 2000, 14:50 GMT 15:50 UK
Granada gobbles up caterer
Granada has gone an a buying spree
Granada wants to float its media group
UK media and leisure company Granada is to buy contract caterer Compass Group.

This will pave the way to split Granada into two separate units - media and hospitality.

The take-over will create a company worth 17.5bn. Granada shareholders will get 66.25% of the combined company, while Compass investors will take the remaining shares.

This is exactly the right deal for us. It puts into effect the demerger that we have long believed right

Granada chairman Gerry Robinson
Once the purchase is complete, Granada hopes to split itself into two focused groups within a year: a hospitality group, which would include Compass, and an independent media group.

About 20% of the new media group will be floated, which should give Granada the required cash to bid for its rivals Carlton Communications or United News.

Rival take-over

Granada has made no secret of its desire to buy one or both of its rivals after the two companies announced their own plans to merge last year. Granada hopes to remain the largest player in the consolidating ITV network.

Granada owns half of digital TV company ONdigital in partnership with Carlton.

The hospitality business created by the deal would include Compass' contract catering operation, which supplies food to a range of large companies, and Granada's hotels and restaurants empire.

Granada's hotels business includes the Forte chain, acquired in a hostile take-over four years ago, while its restaurant operation includes Little Chef, Happy Eater and Granada motorway services.

The media company would include Granada TV, producers of soap opera Coronation Street, London Weekend TV, Yorkshire and Tyne Tees TV, amongst its vast range of interests.

But investors are not thrilled by the deal.

Granada has increased its stake in catering
Granada has increased its catering business
Compass shares, which fell almost 15% on Monday on news that a deal was in the offing, were down 4.5% to 734p while Granada's shares dropped 6.5% to 561p.

"Institutions are peeved that they are going to have their holdings in Compass diluted, and this is going to be a complex deal, which is going to take some time," said one trader.

Management changes

But Granada downplayed suggestions that the deal was not all that it is cracked up to be.

"This is exactly the right deal for us. It puts into effect the demerger that we have long believed right," said Granada chairman Gerry Robinson.

"Furthermore it does it in a way that gives our hospitality and media businesses the scale and opportunity to go from strength to strength as separate groups," he said.

Mr Robinson will stay on until the demerger, and then become a consultant to the catering group.

After the demerger, the hospitality company will be chaired by Compass boss Francis Mackay and the media company by Charles Allen, the current Granada chief executive.

Compass and Granada have close historical links.

Before taking the helm at Granada, Mr Robinson led the buyout from Grand Metropolitan which first created Compass Group as a separate company.

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