SHARES: Shares in the Gresham Hotel Group soared on the Dublin market yesterday after Israeli group Euro Sea Hotels increased its stake in Gresham to more than 28 per cent after buying more than 5.4 million shares from an institutional shareholder, thought to be BIAM, at €1.05 each. This was almost 50 per cent above the previous price in the market.
Euro Sea, which operates a chain of Park Plaza hotels in European cities and six hotels in the Middle East, has been assembling a large stake in Gresham for almost two years and has spent more than €23 million building up its 28 per cent stake. It initially bought 16.6 per cent of Gresham from the Ashdown family in May 2000 and followed this with the purchase of a 5.3 per cent stake held by the Donegal hotelier brothers, Brian and Sean McEniff.
Now with a 28 per cent stake, Euro Sea is unable to increase its shareholding to any appreciable degree without being forced to make a mandatory bid for Gresham. The fact that Euro Sea is no longer in the open market for Gresham shares meant the price slipped back after the initial big deal at €1.05. At the close in Dublin, Gresham was up 17 cents from the overnight level on €0.88
Gresham chief executive, Mr Patrick Coyle, said that he has had discussions with Euro Sea on the same basis as with other major investors in the company. Despite its status as Gresham's biggest shareholder, the Israeli group has not sought board representation nor has it sought to acquire any of Gresham's assets.
Euro Sea has been a likely bidder for the past two years and market sources said its renewed stakebuilding has increased the likelihood of a bid, although Gresham is expensive relative to other hotel groups. The sources added that Euro Sea would likely aim for a friendly bid that would get the support of the Gresham board.
At yesterday's close, Gresham is valued at €69 million, although any bid would need to be pitched at a premium to that valuation. Company broker Goodbody has estimated that Gresham has a net asset value of €1.78 per share after last year's revaluation of the group's properties.
Analysts believe Gresham's city centre hotels are likely to be the main attraction for Euro Sea, particularly the flagship Gresham Hotel in Dublin and the four European hotels in London, Brussels, Amsterdam and Hamburg. Euro Sea already operates six Park Plaza hotels in Germany, three in the Netherlands, three in France and one each in London, Antwerp and Budapest.
Given its clear emphasis on city centre hotels, analysts believe that Euro Sea would have little long-term interest in Gresham's Ryan family hotels in Killarney and Galway, while the situations of the hotels in Cork and Dún Laoghaire are less clear cut. If a successful takeover does materialise, analysts believe Euro Sea would try and sell the non-city centre hotels.
Gresham reports full-year results in the next few weeks and a sharp fall in profits is expected, reflecting the impact of foot-and-mouth disease and the September 11th bombings. Davy has forecast a pre-tax loss of €4.4 million for the year, although this includes a €7.6 million exceptional charge, indicating underlying profits of around €3.2 million.
If earnings per share do come in at the forecast 3.5 cents, it will mean that Euro Sea has bought its latest line of Gresham shares at a very expensive 30 times earnings.
