Name Stake

Marrying the glamorous, upmarket reputation of Hilton hotels with the downbeat image of a chain of bookies is not an easy task for a giant corporation.

It is a challenge that betting, gaming and hotels giant Ladbroke Group has been wrestling with since it bought into the Hilton chain 12 years ago.

Increasing activity in the Ladbroke hotel division has prompted observers to question whether the group may be planning to spin off its gaming and betting businesses. Recent activity includes the 1.2bn acquisition of Stakis in January, and a proposed change of name from Ladbroke Group to Hilton Group.

Melanie Sharp, analyst for leisure and hotels at stockbrokers Charterhouse Tilney, says: "In my opinion the name change coupled with management changes, where they have brought more hoteliers into the organisation, suggests that they may spin off the off-track betting and gaming interests. But I think we'd be looking a year down the line."

A spokesman for Ladbroke denies that the name change represents anything more than a switch to a more widely recognised name. He says the Hilton name is more familiar to international investors and realistically reflects the company's business.

"It {the name change} reflects a change in the balance of business. Hotels now represent 80 per cent of group assets and two-thirds of its profit and the board has said that the Hilton name is more appropriate to the whole group."

Ladbroke has also been in talks with its alliance partner Hilton Hotels Corporation (HHC) which owns the Hilton brand in the States (Ladbroke owns the Hilton brand everywhere else in the world). Hilton International and HHC split for financial reasons in the Sixties, and Hilton International changed names a number of times before

Ladbroke bought it. Rumours that the two companies are to merge have been circulating for many months and discussions are continuing.

That Ladbroke is increasing its emphasis and investment in hotels is clear. In January this year, it acquired the Scottish hotel, health club and casino chain Stakis and has recently moved a number of high profile executives into senior positions at Ladbroke.

These include former Stakis chief executive David Michels who became chief executive of Hilton International, Anthony Harris, a former Stakis director who became managing director of Hilton UK and last week Mike Ashton, former marketing director for Stakis, was appointed marketing director for Hilton in the UK (MW April 15).

On an international level the company is developing a mid-market hotel concept called Garden Inn. It is particularly interested in the Latin American and Asian markets to expand this product.

Ladbroke plans to capitalise on a number of trends. World Tourism is expected to grow by three per cent per annum for the next ten years according to the World Travel and Tourism Council.

"Globally there is a frenzy of activity and the hotel sector is considered hot at the moment" says Melvin Gold, director of hotel leisure and tourism services at Pannell Kerr Forster. "Tourism is expanding and the hotel industry is consolidating. There may be a feeling that companies who are not getting involved [in this consolidation activity] are in danger of missing the boat."

By contrast the group's gaming and off-track betting businesses, Ladbrokes, have seen little activity over the past year and are looking jaded.

Last week, the company announced that its pools division Vernons was discontinuing its Easy Play football game. Ladbroke launched the game in 1998, to recoup earnings after the National Lottery launch in 1994.

In July it emerged that Ladbrokes was to abandon spread betting after just 18 months in the business when it sold Ladbroke Sporting Spreads to IG Index.

Ladbroke also suffered a blow to US gaming ambitions when it had to back away from a 50m deal to acquire the card playing Bicycle Club in Los Angeles.

Earlier this year, the group was forced to sell the 827-strong Coral chain of betting shops after concerns from the UK competition authorities. Ladbroke sold the chain to a company backed by Morgan Grenfell Private Equity for 390m, fetching nearly 30m more than it had paid for the group a year previously. For Ladbroke to profit from its gaming business means cutting costs. One recent measure was a computerised point of sale betting system, Betting Shop 2000 (BS2000), which will be installed in betting shops over the next three years.

A spokesman for the group denies that growth is difficult in betting and gaming. "This is just the nature of the gaming industry. The Coral deal was a one-off opportunity and there are other areas where we can make acquisitions - for example in slot machines. There is nothing to stop us buying up smaller [betting shop] operators."

Ladbrokes, like other betting shop chains, hopes to appeal to a broader market. It launched the numbers game "49s" three years ago for a new market of punters created by the National Lottery.

But Charterhouse Tilney's Sharp says: "I do not think that there will be growth in the off-track betting and gaming sector other than through inflation. The only way for them to grow is through acquisition where they have been blocked."

While lack of growth in the gaming sector is the downside for Ladbroke, its ownership of the Hilton brand is a powerful asset. Some speculate that the brand could be applied to related business such as restaurants and health clubs.

"The Hilton equity is unparalleled. There is no other [hotel] group that has the stature and power coupled with its broad international appeal," says Greg Delaney, chairman and creative director of Delaney Fletcher Bozell.

DFB recently produced the advertising campaign for Hilton International with the tagline It Happens at The Hilton. The poster ads featured John Lennon and Yoko Ono, Nelson Mandela, Winston Churchill, Naomi Campbell and American TV presenter Larry King, who all stayed at Hilton hotels.

Whether Ladbroke is happy to let the two contrasting businesses co-exist within its portfolio is debatable. Selling off the betting shop business to a venture capitalist is an attractive prospect for both parties. It gives one a cash rich business and the other a substantial war chest to invest in hotel related acquisitions which will generate shareholder value.

The immediate concern in the UK is the incorporation of the Stakis culture into the parent company. But for now the renamed Ladbroke Group looks poised for radical change.

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