Hugh Osmond, CMI Bet $8.7 Billion On Hotels And Bars
Dan Ackman, 03.03.03, 8:46 AM ET - forbes.com
NEW YORK - Hugh Osmond, who has launched a hostile takeover bid for hotel and pub owner Six Continents valued at $8.7 billion, has been known as the enfant terrible of British business--though, at 41, it has been suggested recently that he is no longer an enfant. He is, however, raising the stakes and taking a page from 1980s-era raiders like the late Sir James Goldsmith in England and Carl Icahn in the U.S.
Osmond's bid is through his investment vehicle Capital Management and Investment. He is offering 36 shares of CMI for each share in the much larger Six Continents (nyse: SXC - news - people ), owner of Inter-Continental hotels and All Bar One cafe/bars. An alternative offer includes some cash in addition to the shares.
"I am sure this will be a long fight but an interesting one,'' Osmond told Reuters. The would-be titan made his name in the 1990s as the force behind PizzaExpress restaurants and with the $4.3 billion deal for Allied Domecq's (nyse: AED - news - people ) pubs. That transaction, which was also quite hostile, put Osmond in what The Observer calls "The Beerage."
By offering mainly his shares in exchange for theirs, Osmond, a one-time medical student, has his work cut out for him in convincing Six Continent's shareholders that he can create value by splitting the company in pieces and selling them off.
Six Continents has presented its own plan to shareholders to "demerge," as the British say, its Inter-Continental and Holiday Inn hotel businesses and its All Bar One and O'Neill's British Pubs chains into two separately traded companies. Under the plan, Six Continents would also issue a $1.1 billion dividend to shareholders, less than the cash component of Osmond's bid. Osmond has said his bid is conditional on the demerger being delayed or the shareholders voting it down.
Osmond will also have to sell off the 2.6 million Six Continents shares he has already accumulated owing to British takeover laws, which prevent a bidder from profiting on a situation of his own making. Osmond's announcement to that effect sent Six Continents' shares down slightly in early trading.
Osmond said his CMI management team has a proven record of creating shareholder value and that the demerger idea was a loser. "Our message is simple. Vote down Six Continents' demerger. Accept CMI's better alternative. Realize value in our business," Osmond said. He also said shareholders would "receive private-equity levels of returns." The cash in the deal is being supplied by Credit Suisse Group's (nyse: CSR - news - people ) Credit Suisse First Boston and Lehman Brothers (nyse: LEH - news - people ).
Osmond accused Six Continents of being a poor operator of hotels and pubs as well as a lousy dealmaker. He said it sold its bingo parlors and betting shops too cheap. "Almost $9.5 billion of net investment has left operating profits lower than ten years ago,'' Osmond said.
Six Continents, which has noted the unsolicited offer but which has made no formal response, said its own spinoff plan would better enable its shareholders to realize value.
Osmond has been mocking that idea. "What I really object to is the idea that they'll change their spots," he told The Observer recently. "They say that the demerger will enhance shareholder value and make the businesses more biddable separately, but I believe they are only doing it to preserve their own roles--and are actually making it less biddable. Who can go hostile on a pub or hotels bid? You need to see the figures. They are no more demerging to make them more biddable than turkeys vote for Christmas."
Benedict Moore-Bridger, Evening Standard
30 October 2008, 2:50pm
Former Pizza Express owner Hugh Osmond has been nominated as the best credit crunch survivor in Esquire's 2008 Man At The Top Awards.
The entrepreneur has been shortlisted with Flybe owner Jim French, fashion firm Asos, and online gambling service Betfair.
Mr Osmond, a 46-year-old father of three, developed Pizza Express with friend Luke Johnson.
The ex-medic made a fortune when it was floated on the stock exchange in 1996. In his next role as chairman of Punch Taverns he won a battle against brewing giant Whitbread for the estate of Allied Domecq. He later acquired Pearl Assurance and in March 2004 bought Camden Palace for £4 million.
Arsène Wenger is nominated for Esquire's Most Influential Business Thinker award after becoming the only Premiership manager to turn a profit in the transfer market last year.
Elle Macpherson, founder of The Body/Elle Macpherson Intimates, is up for the Woman At The Top prize.
Sam and Jonny Fianu could win the Young Entrepreneur gong.
Winners will be announced on 3 November. December's Esquire is out on 6 November with a business and style supplement.
By Carmel Crimmins - tiscali.co.uk
LONDON (Reuters) - Entrepreneur Hugh Osmond will look at buying up closed life funds in Europe in the medium term, once he has sealed more deals in Britain, Osmond’s adviser Fiona Clutterbuck says.
Osmond, who has made his fortune through pizzas and pubs, clinched his first closed life fund deal, and Britain’s largest, on Monday when shareholders in fund manager HHG voted in favour of his 1.07 billion pound bid for the company’s life business.
"There should be potential for doing something similar in continental Europe in the next 4-5 years," Clutterbuck, a managing director in the financial institutions group at ABN AMRO, which has partly underwritten Osmond’s bid for the HHG units, told Reuters in an interview.
Clutterbuck said Life Company Investor Group, the company set up by Osmond’s Sun Capital Partners and TDR Capital, another private equity firm, had not yet decided which European markets to target. But she said there would be a flurry of deals in Britain.
"I expect there to be brisk activity over the next year to 18 months and I would hope that we would be a part of it."
Tougher funding rules and rough investment returns have encouraged around a fifth of Britain’s long-term insurance market, or nearly 200 billion pounds of assets, to close to new business.
David Cameron's stance on bank bonuses has come under fire from a Conservative business backer.
By James Kirkup, Political Correspondent - telegraph.co.uk
Hugh Osmond, who has given more than £80,000 to the Tories, said Mr Cameron's opposition to some bankers' bonuses was a sign the Conservative leader does not understand the current financial crisis.
Mr Cameron on Sunday upped the political ante on bonuses by saying that no one at banks that have taken money from the taxpayer should be paid a bonus worth more than £2,000.
The Tory leader has also suggested that bankers should do charity work to apologise for the credit crunch and called for more "morality" in the market.
"I don't think that the Tory response to date shows a real attempt to understand either the genesis of the crisis or how to fix it," Mr Osmond said, suggesting Mr Cameron was missing the more important issue of financial regulation.
"Bankers' bonuses are like footballers' wages. You can have a view that they incentivise the wrong sort of behaviour, but they're not at the root of the issue
Mr Osmond's criticism of Mr Cameron's economic credentials is particularly stinging as it comes from one of the UK's most successful entrepreneurs. Mr Osmond has amassed a £350m fortune through businesses such as Pizza Express and Punch Taverns.
Privately, some senior Conservatives are also uncomfortable with Mr Cameron's apparent enthusiasm for publicly criticising financiers, not least because several members of the Tory front bench work part-time for City banks.
Ed Balls, the Children's minister, has launched a strong personal attack on Mr Cameron over his "Broken society" rhetoric.
Mr Cameron has argued that under Labour, basic social norms have weakened and too many people lack a sense of personal responsibility.
Mr Balls, writing in a Tribune, a Labour newspaper, says that Mr Cameron's views are "not only highly offensive to the vast majority of parents who do a great job bringing up their kids; they are also totally unfair on the vast majority of law-abiding young people who work hard at school, play by the rules and, in my experience, deeply resent these attacks."
DATE: 12/05/2008 - execdigital.co.uk
Hugh Osmond is considering relocating Pearl Assurance, his financial services group, outside the UK, joining a host of other companies who are said to be considering overseas moves.
Speaking to The Times, the serial entrepreneur said that Pearl was already likely to list some if its investment funds offshore.
He said that it would be relatively simple to transfer other functions, including the head office, outside the UK to lower-tax locations, such as Dublin or Geneva.
Pearl Assurance is part of a growing list of companies, including WPP, the advertising group, and Aberdeen Asset Management, the fund manager, who are considering moving out of Britain for tax purposes.
United Business Media Plc., the publishing and events group, said last month that it would move its tax base to Ireland. The firm said it will benefit from lower corporation taxes, which stand at 12.5 percent in Ireland, compared to 28 percent in the UK.
Shire, the pharmaceuticals group, has also said that it is leaving Britain.
Companies such as Shell, Experian and Invesco have already revealed plans to move to Ireland and a number of others are considering their options.
A possible move by Pearl will put further pressure on the Treasury to address its treatment of foreign profits.
The government is understood to be preparing revised corporate tax rules. It was reported yesterday that representatives from the TUC would be included in the review, which would include senior business figures, including CBI boss Richard Lambert.
The Guardian, Saturday 8 March 2003 10.51 GMT
At 8am yesterday, Hugh Osmond was the model of relaxed composure. With one arm slung over the back of his chair, tieless and the top button of his shirt unfastened. He showed no sign of exhaustion despite having spent the past week pitching his £5.4bn hostile takeover of hotels and pubs group Six Continents to about 30 investment houses.
A shareholder vote will decide next week whether investors want Six Continents to take a closer look at Mr Osmond's proposition or to press ahead with their own plans to demerge the hotel operations from Six Continents' pubs and restaurants businesses.
Mr Osmond plans to use the shell of a failed dotcom business to take over Britain's 34th biggest quoted company. Through its hotel operations, which include the Intercontinental, Crowne Plaza, Holiday Inn and Posthouse brands, Six Continents is the world's largest hotels operator. Through its pub operations, which include the O'Neils, All Bar One and Edwards chains, Six Continents is the largest pub management business in Britain. It runs more than three times as many pubs as Wetherspoon's.
By contrast, Mr Osmond's investment vehicle, Capital Management & Investment, is an empty shell. Its board members, none of whom draws a salary, are a handful of Mr Osmond's closest business partners, who have a long history of working together. If they pull it off, their bid will be the largest reverse takeover the City has witnessed - by a country mile.
So why should Six Continents shareholders hand over their company? "I would emphasise our plan is not just to buy the business, break it up, and sell it quickly," Mr Osmond explains. "It is to release value, which requires some improvement in the operating performance." He resents the suggestion that he is an opportunistic corporate raider. "That is nonsense. This is not an asset strip or a break-up to leave behind nothing but scorched earth. If you look at our track record we have always left behind businesses that are functioning better."
PizzaExpress, which he ran in the early 90s with his then business partner, Luke Johnson, and Punch pubs, which he grew and prepared for its flotation last summer, are cited as examples. Mr Osmond freely admits he knows nothing of running hotels, but is confident that experienced international operators can be found to manage Six Continents' chains should he take over. His main goal is to release as much as he can of the £7.6bn in primarily freehold as sets he believes are sitting idle on Six Continents' balance sheet.
Some analysts suspect that Mr Osmond is planning to sell as much of Six Continents as he can, leaving a securitised US hotels franchise and a securitised pubs business in Britain. "I think that is a huge over-simplification," he says. "Securitisation has become a pejorative word, but you wouldn't know if you went into a pub whether or not it was securitised - it is just a way to be able to afford to pay for debt at very advantageous rates over the very long term."
Perhaps the most controversial aspect of Mr Osmond's bid is the proposed bonus arrangements he is demanding for himself and his inner circle. None will draw a penny in conventional salary but they are promised a substantial slice of any returns generated for Six Continents shareholders, through four incentivisation schemes. One analyst this week said Mr Osmond and his team could expect to earn payouts of £1bn over three years if their bonus plans were accepted.
"Yes, if we really knock the ball out of the park," says Mr Osmond. "If analysts are saying we are going to make a lot of money, that implies we are not only going to turn around the company, we are going to turn it around big time and make huge amounts for shareholders as well." He admits that the bonus scheme could have been better structured. "The case for simplification is quite strong. As it happens, it was always our intention that it should be relatively simple but in order to try to align our interests with those of shareholders our various advisers made it perhaps a little bit more complicated than it need have been."
Money, he says, is not what gets him out of bed in the morning. "Apart from the money we may make, I believe strongly there are a lot of big companies out there which are seriously under-performing due to bad management. It bothers me when I see something like that. I enjoy the idea of taking something that is doing badly and fixing it." From his student days in Oxford, where he first teamed up with Mr Johnson and plunged his entire grant into night club promotions, his entrepreneurial ambitions have amazed.
After making his name at PizzaExpress he moved into pubs and thrashed Whitbread in a battle to acquire the 3,500-strong pub estate of Allied Domecq. In his idler moments Mr Osmond, who read medicine at university, has talked of how he would love to get his hands on the NHS. "It is not a real ambition but you do look at the appalling shambles of it and think it is inconceivable that the thing can work. I have various relatives who are doctors and you hear things that make it sound like all the worst big companies you've ever come across rolled into one."
After a falling out with Mr Johnson over a business deal in the late 90s, Mr Osmond says the two men are back on speaking terms. "We are not working together but relations are cordial." Asked if he thought Mr Johnson's recent £263m offer to buy back PizzaExpress was undervalued, Mr Osmond, who himself came close to bidding for the company earlier this year, says: "As it happens, no. I understand where shareholders are coming from when they say the price doesn't look very high, but it is a higher price than we would have been prepared to pay. I think it reflects the performance of the business as it is. I don't particularly see a prospect of shareholders getting greater value than Luke's bid. I think he has done well to put it together."
Some disenchanted Six Continents shareholders agree with Mr Osmond that existing management under chairman Sir Ian Prosser has lost its way, but suggest a wholesale sacking of the board would be a cheaper and more effective strategy than selling the business. "In essence, that is exactly the same as our proposal," Mr Osmond argues.
'A vote about choice'
Nor does Mr Osmond believe Sir Ian's plans to demerge the company, which go to a shareholder vote next Wednesday, will open the hotels and pubs divisions to a rush of bidders. "It is extremely unlikely that people will bid for the company after the demerger. What you've got now is a one-off disclosure of information [required by law for the demerger plans to proceed] from a company that is extremely unhelpful to people looking to bid for it. This is the only time when they have released this information and all their material contracts are on display." Not all institutional shareholders are persuaded. He stresses that a vote against the demerger is not an acceptance of his offer. "This is a vote about choice. It is about keeping your options open. The point of Wednesday is not to let the board railroad the company into demerger." He will, of course, be attending the meeting. He has done his research. He ate at a branch near Newbury of the company's budget price family restaurant chain Harvester two weeks ago. "As far as I could see the menu was stuck in the 1980s. The only thing I can remember eating was the coleslaw, which wasn't bad."
BLOOMBERG, LONDON - taipeitimes.com
Tuesday, Mar 04, 2003,
Hugh Osmond, founder of the Punch Taverns Plc pub chain, offered to buy Six Continents Plc, owner of the InterContinental and Holiday Inn hotels, for £7 billion (US$11 billion) in cash and assumed debt.
Osmond offered 36 new shares of his Capital Management & Investment Plc holding company for each Six Continents share, valuing the UK hotelier at 648 pence a share, compared with 619 pence Friday. Alternatively, investors may take 643 pence a share in cash and stock, Osmond said in a Regulatory News Service statement.
The 40-year-old Osmond, who amassed more than 100 million pounds by investing in British bars, real estate and restaurants, wants to break up Six Continents, owner of 3,200 hotels and 2,000 pubs. The acquisition would be the biggest ever in Europe's lodging and bar industries.
Shares of Six Continents were down 12 pence, or 1.9 percent, to 607 pence at 8:53am in London, giving the London-based company a market value of £5.3 billion.
Along with InterContinental and Holiday Inn, Osmond would acquire the Crowne Plaza hotels as well as Britain's fourth-largest pub chain, with venues such as All Bar One. Six Continents has businesses in almost 100 countries, from the US to China.
Osmond has said he aims to thwart the company's plan to spin off bars from hotels, and gain all the assets in one transaction.
Six Continents already has rejected approaches from Osmond.
Under Six Continents' intended spinoff, scheduled for next month, shareholders would gain 50 shares in each of the two listed companies, for every 59 Six Continents shares held. They would also be paid £700 million, or 81 pence a share.
With the division of the company, Six Continents has estimated it would reap about US$100 million in cost savings at the hotels business this year and US$10 million at the pubs company. Six Continents also is nearing the end of a five-year, US$1 billion revamp to overhaul InterContinental hotels including Le Grand, a 19th century building opposite Paris' main opera house.
Profitability at the hotels is under pressure, particularly in the US and Europe, because of faltering economies and prospect of war in Iraq, Chairman Ian Prosser has said.
Six Continents said in December, when it posted a 24 percent decline in second-half profit, that it expects corporate room rates at its InterContinental and Crowne Plaza chains to be unchanged or decline this year.
Osmond said Feb. 20 he intends to increase the value of Six Continents by breaking it up and selling parts of the business.
He is worth £134 million, according to the Sunday Times 2002 Rich List. Osmond made much of his fortune by buying and selling pubs, starting with the creation of Punch Taverns Group Ltd in 1997 and the spinoff of Punch Taverns last year.
In 1999, he led Punch Taverns Group to victory in a takeover battle for Allied Domecq Plc's 3,500 pubs, knocking out bidding rival Whitbread Plc. His £2.75 billion offer was a combination of cash, assumed debt and shares of Bass Plc, which agreed to buy about a fifth of the pubs.
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Published Date: 23 February 2003
By ROBERT BAILHACHE
HUGH Osmond, the corporate raider, will this week launch an audacious bid to take over Six Continents with an offer that values the operator of the Holiday Inn and Crowne Plaza hotel chains at more than £5.5bn.
Advisers working on the hostile bid are meeting today to put the finishing touches to an offer that will be made through Osmond’s takeover vehicle, Capital Management and Investment (CMI). The proposal will be tabled by Friday.
Under the scheme, CMI would promise to release the substantial value locked within Six Continents. The group’s shares trade at a big discount to the aggregate value of the assets owned by the company.
Shareholders are to be offered an all-paper and a cash-and-shares alternative under the terms being prepared by CMI. Osmond’s advisers think most investors are likely to prefer the paper offer because the restructuring gains will be greater.
CMI is to transfer its listing from London’s small Alternative Investment Market to the main board of the London Stock Exchange, enabling institutional shareholders to accept paper in the bid vehicle.
Osmond is expected to promise an immediate shareholder handout of up to £1.4bn to sweeten the big institutional owners of Six Continents that will be vital in winning shareholder support for any takeover.
Six Continents has promised to return £700m to investors under the terms of its own proposed demerger of its hotel and leisure operations, which include bars and restaurants such as the All Bar One, O’Neills and Harvester chains.
Osmond is to make the postponement of an extraordinary shareholder meeting on March 12 to approve the demerger a condition of his offer.
CMI aims to create shareholder value by selling the group’s hotel property, leasing back the sites, and securitise revenues from the pub and restaurant businesses.
People familiar with the terms said this weekend that CMI has secured loan guarantees worth at least £1.5bn.
Advisers Credit Suisse First Boston and Lehman Brothers have agreed to provide acquisition and principal finance.
Pressure on Six Continents intensified on Friday after group chairman Sir Ian Prosser was forced to qualify a performance claim by the group’s existing management, many of whom are already discredited across the City of London.
In response to CMI’s confirmation that it was considering a bid for Six Continents, Prosser had to retract a claim that Six Continents had outperformed the FTSE 100 over the past five and 10 years, which was wrong.
Sources close to CMI said the retraction was symptomatic of a management team that had consistently "bluffed and delayed" fundamental restructuring, even though it was clearly in the best interests of shareholders.
On Friday, some of the biggest shareholders in Six Continents indicated that they would be willing to accept paper in CMI so long as the Osmond management team was able to demonstrate it had the financial clout to execute the restructuring.
Some shareholders said they would only take a formal bid from Osmond seriously if he were able to show that he had secured irrevocable undertakings by trade or financial buyers to acquire some of the hotel assets.
Osmond, 41, shot to prominence by defeating drinks giant Whitbread in a battle for 3,500 pubs owned by Allied Domecq in 1999.
He later sold the buyout vehicle Punch Taverns, now listed on the London Stock Exchange, to Texas Pacific.
Posted by: Neil Collins - blogs.reuters.com
– Neil Collins is a Reuters columnist. The opinions expressed are his own –
By Neil Collins
LONDON, April 9 (Reuters) - Is Hugh Osmond having a laugh?
The answer is obviously yes, except that Osmond doesn’t do jokes, and if he can persuade the banks that have lent to his leveraged insurance vehicle, Pearl, with his reconstruction arithmetic, he’s the one who will end up with the biggest grin.
He’s talking of floating shares in the disparate collection of closed life assurance companies he put together only last year, because “the debt funded acquisition model that served Pearl and others so well in the past is no longer appropriate.”
It may have served him well, but the holders of a 500 million pound ($736.5 million) sterling eurobond, issued by a company that is now a Pearl subsidiary, are not laughing.
Rather, they are spitting tacks after Osmond said last month that he wasn’t going to pay the coupon on the bond, even though he had the money.
The price, already weak in anticipation of bad news, has collapsed to 5 pence in the pound bid, 10 pence offered.
The holders have formed themselves into an action group, and forced Pearl to agree to meet them next month.
Legally, they are on weak ground, since the deed allows payment to be deferred, but if Osmond is serious about flotation, their position looks much better.
The holders range across the usual spectrum of UK life offices and pension funds, who would be the natural buyers in the share issue.
There is more at stake here than the loss of 90% of the bond’s value. If Osmond can effectively turn this issue into a perpetual zero-coupon bond, plenty of others will try to do the same in this $100 billion market.
Where the bondholders’ lawyers look likely to fail, institutional pressure may well force better behaviour - assuming Osmond really is serious about coming back to market.
(Editing by Timothy Heritage)
Insurance group boss may put in his own money to clinch agreement with banks
Ben Marlow and Iain Dey
HUGH OSMOND is talking to banks over restructuring the £3 billion debt pile in his Pearl Group insurance empire.
The negotiations could lead to a partial debt-for-equity swap agreed with the firm’s lending banks, Lloyds Banking Group, Dresdner Kleinwort and Royal Bank of Scotland.
Osmond, who made his name with the Pizza Express restaurant chain and founded Punch Taverns, is also considering pumping more of his £350m personal fortune into the business to clinch a deal, which would be expected to involve private-equity group TDR.
The talks come amid pressure from the Financial Services Authority (FSA) over the structure of Osmond’s £5 billion takeover of Resolution Life from rival insurance entrepreneur Clive Cowdery.
The debt probe is separate to an FSA investigation into Cowdery and four other directors of Resolution over share sales leading up to the sale.
Pearl Group has £2.2 billion of debt in Impala, the bid vehicle that bought Resolution, and a further £800m across the rest of the business.
The debt is ringfenced from Resolution’s life-insurance companies, which include policies originally sold by Abbey National, London Life, Britannia Life, Scottish Provident and Cornhill. Pearl has more than 7m policyholders in total.
Under the structure of the deal, the debt pile is serviced using cash flow from the life companies.
However, the regulator is tightening rules on insurance-company capital in light of huge falls in the stock market and the collapse of corporate bonds.
The FSA may not allow the capital to be released. This means that Pearl would be unable to make interest payments to its banks.
Pearl has not breached any of the covenants on its debt, according to banking sources. Under the structure of the deal, the banks do not have any power to demand money from the life funds.
Although the FSA is thought to be weeks away from working out how to deal with the issue, Osmond has already begun discussions with his bankers. The talks are expected to accelerate this week.
It is understood that all parties are keen to restructure the deal, which was negotiated as the bull market was in its death throes. The deal followed a hotly-contested auction that sucked in a number of the UK’s life-assurance companies.
Resolution originally agreed a merger with Friends Provident. Osmond then began to build a stake in Resolution, and eventually launched a cash takeover offer.
That prompted a bidding war with rival life assurer Standard Life, which countered with a share-based offer for Resolution. The former mutual backed out of the race after news of the approach triggered a collapse in its share price.
Resolution revealed last week that it is being investigated over events related to the period from October 2007 to May last year, when the deal completed. The deal had been scheduled to close in March last year.
All of Resolution’s directors apart from Mike Biggs, then the company’s chairman, sold shares in December 2007.
By Daily Mail Reporter
Hugh Osmond could suffer a major blow to his fortune in the impending overhaul of his insurance empire.
The entrepreneur, whose career took him from pubs and Pizza Express to 'zombie' life insurance funds, is close to an agreement over the restructuring of Pearl Group.
A ?3billion debt-for-equity swap could reportedly lead to Osmond losing up to ?200million of his paper fortune.
Pearl could not be reached for comment.
Pearl is in talks with its banks, led by Lloyds Banking Group, after being hit by falling share values and paying a hefty ?5billion for rival Resolution.
The deal will reportedly involve ?500million of new equity being injected into the firm by private equity firm Liberty.
Osmond's stake in the business is expected to be almost erased in the deal.
A deal could be announced by the end of this week.