Integration costs and a higher interest bill should be more than offset by increased revenue and reduction in some operating costs to make the Jurys/Doyle merger "mildly" earnings enhancing for the Jurys Group in the financial year to April 30th, 2000, according to group estimates. But when some of the estimated goodwill of £50 million arising on the deal is written off against profits, earnings per share will be marginally lower in the first year. If the group can generate the increases in revenue and cost reductions possible from a larger scale operation and the advantages of a broader sales and marketing base, the deal should boost earnings per share for its shareholders in subsequent years.

Jurys is paying £247.6 million to acquire the net assets of the Doyle group, or £119,000 per room acquired and about 5.5 times the operating profits of a merged group. The latest results from Doyle show net assets of £92.3 million at July 31st 1998. But the Doyle hotels have been revalued as part of the acquisition process, adding about £100 million to the net asset value. This reduces the goodwill element of the deal - the excess of the purchase price over the fair value of the net assets. Since goodwill has to be written off against profits by the acquirer the revaluation helps Jurys reduce the annual write-off of goodwill against Jurys' profits.

Jurys' borrowings will increase significantly as a result of the deal. The group will borrow to fund the €115.3 million (£90.8 million) cash element of the deal and will take over Doyle Group borrowings of an estimated €76.2 million (£60 million), increasing group borrowings by €191.5 million (£150.8 million). But given its current low level of borrowings, the group's debt/equity ratio will still be manageable.

Jurys believes the merger will generate "significant" opportunities to expand revenue through increasing occupancy and room rates. The larger scale of the group should provide an opportunity to cut some costs through increased purchasing power. But the group will face integration costs and will need to invest in upgrading some hotels. The group is confident that it has the management capacity when Doyle hotel managers are included to handle the enlarged operation - the number of group hotels will increase from 17 to 28.