Thistle Hotels PLC
Thistle Hotels PLC
Sales: $443.0 million (2001)
Stock Exchanges: London
Ticker Symbol: THO
NAIC: 721110 Hotels (Except Casino Hotels) and Motels
Thistle Hotels PLC is the fourth largest U.K. hotels group, and the largest in the all-important city of London. The company owns 56 hotels, including 22 hotels in London, for a total of nearly 11,000 rooms. The company also manages 37 other, chiefly regional hotels, sold to Jersey-based Orb Estates in a £600 million sale-leaseback agreement in 2002. The deal provides a 30-year management contract for Thistle and points to possible similar deals in the future as the company joins an industry shift from “bricks to brains.” In addition to hotel services, the company offers a number of onsite amenities, including five Otium Health & Leisure Club facilities at selected hotels, and a smaller workout concept, Just Gym, at others; the company’s hotel restaurant formats include CoMotion brewpubs, Fay a Mediterranean Bar and Grills, and the Asian-themed Gengis. Thistle also has become a leading integrator of new technologies, and plans to wire its hotels for high-speed Internet access. Listed on the London stock exchange, the company has borne the brunt of the slump in the travel and tourism industry brought on by the September 11, 2001 attacks and the outbreak of foot-and-mouth disease in England. As its share price dropped to less than half of its 1996 initial public offering (IPO) price, majority shareholder BIL, formerly Brierley Investments Ltd., which already holds 46 percent of the company, launched a full takeover offer in March 2003. Thistle, backed by minority shareholders, including the Singapore government, flatly rejected that offer. Thistle is led by CEO Ian Burke.
Creating a Hotel and Bar Group in the 1970s
The Thistle brand stemmed from a chain of hotels established by brewery and pub giant Scottish & Newcastle from early decades of the 20th century. Yet the later Thistle Hotels PLC had its origins in the early 1960s, and especially resulted from the leadership of Robert Peel, who took over the company, then known as Mount Charlotte Investments, in the mid-1970s.
Mount Charlotte Investments had entered the hospitality sector at the beginning of the 1960s with the acquisition of a number of restaurants, pubs, and hotels. Yet for the most part, the company’s holdings, built up over the next decade, tended toward the low end of the market. By the mid-1970s, the company’s portfolio was skewed in large part toward fish and chips shops and nightclubs. The company’s hotels were primarily located along the British coast, in the country’s then fading seaside resort areas. By the mid-1970s, however, Mount Charlotte had begun to lose money.
In 1976, the company found a new shareholder when Robert Peel, then 29 years old, borrowed £10,000 to buy a stake in Mount Charlotte. That purchase gave Peel an executive director’s position. By the following year, Peel had taken over the role of managing director, before being named CEO in 1978. Peel’s background in the hospitality business reached back to his childhood in Alexandria, Egypt, where his family owned a cotton company, and also operated restaurants. After leaving school, Peel struck out on his own, starting his career at the famed George V hotel in Paris, then joining the Forte hotel group in the United Kingdom.
As head of Mount Charlotte, Peel began to reorient the company’s portfolio and operations. In 1979, Mount Charlotte sold off its restaurants and nightclubs in order to focus exclusively on its hotels. Peel then began to shift the group’s portfolio of hotels toward the higher end of the sector, launching a property acquisition campaign. The company at first targeted the regional U.K. market, buying up individual and small groups of properties, before targeting the city of London in the mid-1980s. That effort was boosted in 1987 with the purchase of the London Park Hotels group for £38 million.
By 1988, the company had purchased some 50 hotels throughout the United Kingdom and had built up a portfolio of 15 London hotels, including such landmarks as the Mount Royal and the Barbican. By mid-1989, the company added several more hotels, including the Ramada Renaissance Hotels group, for £30 million, and London’s Charles Dickens Hotel, for £24.5 million. Aiding the company in the acquisition drive was the arrival of a new major shareholder, Brierley Investments Ltd. (BIL), based in New Zealand, which acquired a 16 percent share of Mount Charlotte in 1988.
Buoyed by the British property boom and the skyrocketing property values of the late 1980s, Mount Charlotte became still more ambitious. In September 1989, the company agreed to pay £645 million in cash to acquire the 34 Thistle Hotels owned by Scottish & Newcastle, including, among other landmark properties, the Tower Hotel in London. The company was supported in the acquisition by BIL, which, as part of a right issue to raise funds for the purchase, raised its stake in Mount Charlotte to nearly 29 percent.
Mount Charlotte, which maintained the Thistle Hotel brand alongside its own chain of Mount Charlotte hotels, now became one of the leading hotel groups in the United Kingdom—second only to Forte group—and the leading player in the important London market. In all, the company operated more than 100 hotels, with more than 14,000 total rooms. Soon after the Thistle Hotel purchase, Mount Charlotte announced a plan to sell off some £200 million of its lower-valued assets. The collapse of the British building sector and the corresponding glut of hotel rooms combined with the disruption of the travel and tourism sector following the Persian Gulf War put a halt to Mount Charlotte’s plans. By 1990, the company had managed to raise less than half of its goal.
Ownership Changes in the 1990s
In that year, BIL paid £64 million to buy out the 10.1 percent stake in Mount Charlotte held by Kuwaiti Investment Office. That purchase pushed BIL’s shareholder position to 39.9 percent, sparking a mandatory takeover offer. In September 1990, BIL offered to acquire the remaining shares of Mount Charlotte in a bid that valued the entire company at just £644 million. The takeover quickly turned hostile, as Mount Charlotte’s board of directors described the offer as “derisory.” Yet, struggling under its huge debt burden, Mount Charlotte could not resist for long. BIL prevailed and Mount Charlotte was delisted from the London Stock Exchange. Despite the hostile nature of the takeover, Robert Peel remained as chief executive.
Yet BIL quickly found itself in trouble. By 1991, the company’s profits had slumped below £2 million. Meanwhile, BIL’s other investments, notably its 60 percent of struggling New Zealand Air, forced it to seek outside investors. In 1991, BIL sold a 30 percent stake in Mount Charlotte to the Singapore government, through two foreign investment vehicles, Temasek Holdings and Government of Singapore Investment Corporation, raising a total of £227.5 million.
With new financial backing, Robert Peel led Mount Charlotte on an ambitious restructuring around Thistle Hotels, which became the company’s upscale hotel brand, and the mid-range Mount Charlotte brand. In 1991 the company began an upgrade program designed to upgrade and convert a majority of its hotels to the Thistle Hotels brand. By 1995, the company had spent some £140 million on its upgrade program, raising the number of Thistle-branded hotels in its portfolio to 46, with plans to top 70 hotels before the end of the decade. The company now targeted the fast-growing corporate market, in order to raise its average room rates.
By the mid-1990s, the British hospitality sector had recovered from the recession and was once again growing strongly. The hotel sector was in particular aided by London’s increasing importance as the financial center for the European Economic Community, which was then beginning its transition toward the single European currency. Mount Charlotte profited from the new business environment, raising its occupancy rates past 75 percent by 1995. In that year, the company changed its name to Thistle Hotels in order to emphasize its commitment to its upscale brand.
Thistle Hotels went public in 1996, selling some 35 percent of the company’s shares and allowing BIL to reduce its holding to 46 percent. The listing valued Thistle Hotels PLC at some £1.2 billion. It also gave the company the investment capital to finance its continued upgrade program, as the company earmarked some £100 million to be spent on further hotel conversions. At the time of the public offering, Peel, known for an extremely hands-on management style, explained his longtime commitment to the company to the Financial Times,“If you are a mother, you stick with your children.”
Our goal is to develop full service hotels offering consistent standards in prime locations, operating under a strong and widely recognised brand.
We want business and leisure guests to recognise the Thistle brand and to know what it represents: a quality product and service that remains consistent across every hotel in the Group.
Our strategy for achieving this has four elements: To establish and maintain brand, product and service standards in all aspects of a full service hotel operation. To improve operations management in rooms inventory, food and beverage provision and the meetings business. To focus hotel asset management on upgrading the portfolio —by improvement, acquisition or disposal. To underpin these profit drivers with business support in information technology and people management.
Yet by 1997, Thistle Hotels had failed to maintain its profit growth. At the same time the company was criticized for holding on to too many of its lesser quality hotels, while at the same time missing the boat on the technological innovations that had swept through the hotel industry in the 1990s. With the company’s share price slipping, Peel was finally forced to separate from his children, resigning that year.
London-Focused Upscale Hotel Group in the New Century
Peel was replaced by Ian Burke, who had served a stint with Bass (later Six Continents), among others, before coming to Thistle. Burke set out to restructure Thistle’s portfolio, steering it toward an exclusive focus on the four-star hotel segment. The company dropped the Mount Charlotte brand, selling 30 of its smaller, regional hotels in September 1998. Yet by then the company had nearly been sold in its entirety. By June 1998 the company had received interest from seven different potential buyers; by August of that year, the list had been pared down to a single purchaser, Nomura Corp. Yet the acquisition fell through by the next month, after Nomura substantially reduced its offer.
Instead, Thistle Hotels continued with its upgrade program, which was expected to last into 2001. As part of that program, the company began renaming most of its hotels to include the Thistle brand in their names. The company continued shedding properties, pruning its portfolio back to just 56 hotels by 2001. Meanwhile, Burke had brought the technological revolution to the Thistle Hotel networks, adding in-room fax and modem facilities, among other upgrades. The company later began adding high-speed Internet access.
At the same time, the company improved its amenities, introducing a new restaurant concept, CoMotion, which combined the atmosphere of a New York deli with that of an Italian café. Another upgrade to the company’s facilities offerings came with the launch of its Otium Health & Leisure Club, a full-scale spa concept introduced at five hotels. The company also launched a smaller exercise concept, Just Gym, which was rolled out at ten hotels. Another important change for the company came with the launch of its e-commerce Website; at the same time the company aligned its pricing policy so that customers received the same room rates no matter the booking source. These changes helped the company win the award for Best Hotel Group for three consecutive years in Business Travel Organiser magazine’s readers poll.
Yet a new downturn in the British hotel market once again raised speculation of a takeover attempt for Thistle Hotels, given the suggestion of BIL’s interest in selling out part or all of its 46 percent stake in Thistle. In 2002, the company joined a growing trend in the hotel industry, that of a shift from “bricks to brains,” that is, from property ownership to pure hotel management. In March of that year, the company announced that it had sold 37 of its regional and London-based hotels to Jersey-based Orb Estates for slightly more than £600 million. The deal, which provided Thistle with 30-year management contracts on the hotels, also transformed the company’s remaining portfolio to a focus on the London market.
With its turnover slashed and its profits dropping, Thistle once again became the subject of takeover rumors at the end of 2002. In November 2002, Orb itself was rumored to have become interested in acquiring control of the hotel group. Yet in February 2003, BIL once again stepped up as the company’s suitor, acknowledging its interest in acquiring full control of Thistle. At the beginning of March 2003, BIL made an offer for the company at 115p per share—a premium to the stock’s price at the time, which had dipped below lOOp, but far below the original IPO price of 170p. BIL’s offer valued Thistle at just £555 million, and was promptly rejected by the company.
Nonetheless, with the hotel sector remaining under pressure, especially with the onset of war in Iraq, Thistle most likely had not heard the last from BIL, which believed that taking Thistle private again would prove the best way to protect the company during the uncertain economic time. In addition, despite the slimming of its portfolio, Thistle remained one of the United Kingdom’s most prominent hotel groups, and the clear leader in the important London market.
Arden Hotel; Castle Ross Hotels Limited; Gale Six Limited; Highlife Value Breaks Limited; Kingsmead Hotels Limited; London Park Hotels Limited; LPH Angus Limited; LPH Grand Limited; LPH London Park Limited; Mount Charlotte Hotels Limited; Pinewood Hotel Limited; Thistle Hotels (Caledonia) Limited.
- Mount Charlotte Investments begins acquiring restaurants, hotels, and nightclubs.
- Scottish & Newcastle establishes the Thistle Hotels brand for its upscale hotels.
- Robert Peel acquires a stake in Mount Charlotte for £10,000, becoming an executive director.
- Peel is named CEO of Mount Charlotte and begins refocusing the company as a hotel group, selling off its restaurants and nightclubs the following year.
- Mount Charlotte acquires London Park Hotels for £38 million.
- Mount Charlotte acquires 34 Thistle Hotels for £644 million.
- Brierley Investments Ltd. (BIL) acquires control of Mount Charlotte.
- Mount Charlotte changes its name to Thistle Hotels.
- Thistle Hotels goes public.
- Thistle Hotels reorients as a four-star hotel group, selling off 30 regional hotels.
- Thistle sells 37 hotels in a sale-leaseback agreement with Orb Estates.
- BIL launches a takeover offer to acquire 100 percent control of Thistle Hotels.
Compass Group PLC; MyTravel Group PLC; Hilton Group PLC; Six Continents PLC; Virgin Group Ltd.; SABMiller PLC; Rank Group PLC.
Cattell, Brian, “Thistle Attracts Takeover Interest,” Daily Deal, February 22, 2003.
Daneshkhu, Scheherazade, “Thistle Hopes to Flower Second-Time Round,” Financial Times, August 3, 1996, p. 9.
——, “Thistle Hotels Keeps Focus on Four-Star Upgrade,” Financial Times, September 9, 1999, p. 26.
Durman, Paul, “Peel’s Bed of Thistles,” Times, November 26, 1997, p. 30.
Hobday, Nicola, “Orb Mulls Bid for U.K.’s Thistle,” Daily Deal, November 5, 2002.
John, Peter, “Thistle Results Overshadowed by Possible Bid,” Financial Times, March 4, 2003, p. 23.
McClary, Sam, “Prickly Problems for Thistle Group,” Caterer & Hotelkeeper, September 5, 2002, p. 5.
Osborne, Alistair, “Thistle Bristles at £555m Cash Bid,” Daily Telegraph, March 5, 2003, p. 33.
Webster, Jenny, “Burke’s Steerage,” Caterer & Hotelkeeper, April 18, 2002, p. 22.