Six Continents rejects £5.6bn offer

Going Hostile: Takeover battle for 6C hots up as Osmond makes formal offer for hotels to pubs group

Six Continents has firmly rejected a £5.6bn takeover bid launched yesterday by Hugh Osmond, the entrepreneur, dismissing the offer as "opportunistic and risky". The move sets the stage for the biggest hostile bid battle in the City for years.

Shareholders in the hotels to pubs group reacted cautiously to the offer, which promises to unleash a second "David and Goliath"-style battle for Mr Osmond after he won Allied Domecq's pub estate in 1999.

Investors expressed reservation at the structure of the all-paper offer, which is worth about 648p a share, and the credibility of the proposed management team. Shares in Six Continents slid 3 per cent to 600p, making them the second-biggest faller in the FTSE 100.

Capital Management & Investment, Mr Osmond's AIM-listed bid vehicle, is offering 36 new shares for every one Six Continents' share, valuing the group at about £5.6bn. There is a partial cash alternative, worth about £1.4bn, which comprises 157p of cash and 27 CMI shares for each Six Continents' share.

Richard North, the chief executive-elect of the hotels group, said: "Why should our shareholders defer the demerger on a wing and a prayer and a hope of a promise? We need facts. We need a proper proposal."

One large shareholder said: "They have got to convince us that we will get more money with them than with the existing management." The investor added that £1.4bn of cash was "neither here nor there", suggesting that CMI would have to substantially increase the cash element to win. Jim Stride, at Axa Investment Managers, said: "Our initial reaction is that there is no reason not to support the demerger proposal."

Mr Osmond, who made his name at PizzaExpress in the early Nineties, is planning to split up Six Continents. He hopes to raise cash to hand back to shareholders through a series of asset disposals and financing techniques such as securitising the cash flow from the group's 2,100-strong pub estate and its Holiday Inn hotel franchises. He could not provide details yesterday.

Mr Osmond attacked Six Continents' record, urging investors to reject its demerger plans, which include the pledge to return £700m of cash back to shareholders. "It is just another deal by a bunch of people who keep doing bad deals.... They have spent nearly £6bn of net investment [over the past decade] to achieve a 10 per cent decline in operating profit. It's almost unbelievable," he said.

In contrast, Mr Osmond pointed to his own track record, which includes pioneering pub securitisations while at Punch Group, the pub company he founded, and victory in an acrimonious bid battle that saw him wrest control of Allied Domecq's pubs from Whitbread for about £2.75bn.

Stepping up the vitriol, Six Continents criticised CMI's "vague proposals" for carrying "considerable risk", as it reiterated its intention to press ahead with the demerger. Mr North said: "[Mr Osmond] is offering shareholders 98 per cent of their company to borrow off their balance sheet to pay money back. Yet the people coming in have no experience in hotels.... It is breathtaking."

Mr Osmond said he would bring on board partners to manage Six Continents' hotel assets, once the bid had been completed. He said CMI had "substantial discussions" with groups interested either in bidding for some of the hotels, such as InterContinental and Crowne Plaza, or managing some of its Holiday Inn properties.

CMI has just one week to persuade shareholders to back its plans ahead of a proposed shareholder meeting to approve the demerger on 12 March.

Six Continents also named David Webster, the chairman of Safeway, as the deputy chairman and senior non-executive director at the hotels group.

RISING SUN MEN BEHIND THE BID

Hugh Osmond, 40:

Motto: "Act decisively. Use maximum force. Do it today." Studied medicine at Oxford University. Made his name at PizzaExpress in the early Nineties, alongside his former buddy Luke Johnson. Bought My Kinda Town, another restaurant group, in 1994 for £13m; sold it for £57m two years later. Swapped food for booze in 1996 with the acquisition of the Wellington pub company. This later became Punch Taverns. Most audacious move to date was a £2.75bn hostile bid to snatch Allied Domecq's pub estate from Whitbread. Executive chairman of Capital Management & Investment.

Lord Edward Spencer-Churchill, 28: Son of the Duke of Marlborough. Studied economics at Cambridge University. Started his career as a management consultant with Bain & Co. Left to join Sun Capital Partners in 1998. Met Mr Osmond at Punch Group, where he was the former commercial director. Not on board because "of his privileged background", according to Mr Osmond. Reputation for hanging out with the US rap star, Sean "P Diddy" Coombe. Strategy director of CMI.

Alan McIntosh, 35: Mr Osmond's right-hand man. Qualified as a chartered accountant with Deloitte & Touche. Teamed up with Mr Osmond in 1994. Co-founder and finance director of Punch Taverns; broke new ground in pub financing by securitising Punch's cash flows. Has raised more than £4bn for acquisitions through bank debt and securitisations over the past four years. Helped float Topps Tiles in 1997. Group finance director of CMI.

Marc Jonas, 33: Studied politics, philosophy and economics at Oxford University. Specialised in property deals at Hambros, the investment bank. Was property director of Punch Group; still non-executive director of Punch Taverns. Also a director of Wellington Pub Co. Drove Sun Capital's acquisition last year of Center Parcs UK, the holiday business, through a £465m sale and leaseback. Group property director of CMI.

Matthew Allen, 46: Trained as a chartered accountant with Arthur Andersen. Is a former international advertising executive with Saatchi & Saatchi. Non-executive chairman of Integrated Dental Holdings, alongside Luke Johnson. Quit as a director of PizzaExpress last year after nine years, which included a stint as its international director. Not on the board of CMI.