Will Granada’s conglomerate succumb to demerger frenzy?

It is a common rubric of the investment community that, if you want to get really rich, you should look at what the rest of the market is doing and do precisely the opposite. It won’t always work – as doubtless Nick Leeson would testify – and you might need an extremely high cash pile to cushion the blows you take until the market turns in your favour.

But you can see the point. Anyone can follow a trend. The really smart money anticipates the turn in the market, when margins will either widen or narrow radically to the detriment of those who, like Margaret Thatcher, thought they could go on and on doing the same thing.

So it might be that Granada, under Gerry Robinson’s stewardship, is a visionary in current British industrial practice. Whatever the claim and counter-claim of the past three months, Granada’s acrimonious acquisition of Forte is in the style of the conglomerate, rather than the current fad for demerger. Now that the bid hysteria has turned to considerations of winning the peace, we might ask ourselves whether Granada is visionary or oddball – though the two categories are by no means mutually exclusive.

True, Granada has not claimed to be playing the conglomerate game. It always said it would dispose of what it considers to be non-core interests – mostly luxury hotels – and the bits of Forte, Welcome Break and so on, that would otherwise fall foul of the competition authorities under common ownership. That little lot should come to something over 2bn and Lazards was appointed early this week to hawk it.

Early in the bid, the Granada camp claimed it would make this disposal within 48 hours of owning Forte. Well, such is the excitement of battle and it would seem to be taking a little bit longer.

But first, let’s assume that Granada’s strategy in acquiring Forte flies in the face of currently accepted corporate wisdom that demerger is the only game in town. It’s not a bad assumption to make. Whatever its divestment plans, it has just paid nearly 4bn to enhance earnings, while the arch-duke of growth by acquisition has just announced that he will demerge his bloated conglomerate into four constituent parts.

Hanson is the modern architect of conglomeratism. But that he should have fallen victim to the fashion for demerger – what Sir James Goldsmith used to call, rather more prosaically, “unbundling” – surely gives currency to the view that it is the shape of new millennium business.

Nor is the Hanson initiative at the leading edge of the demerger wing. Racal did it with Vodafone. ICI begat Zeneca (ironically enough, having its hand forced by Hanson sitting on a predatory ten per cent of its shares). Courtaulds spun out textiles from chemicals. In the US, ITT and Marriott have seen the demerger light.

There is more to come, by all accounts. The market awaits some similar sort of development at Trafalgar House. Former ICI chairman Sir Denys Henderson now presides over Rank and has brought in Andrew Teare as ceo from English China Clays, a move widely perceived as presaging an unbundling of the leisure conglomerate. Thorn EMI might well have something to say on the subject later this month.

What drives this trend would fill a short book. Suffice to say, the economic and political climate supports the notion that it is for the investor to generalise, not the company.

Which brings me back to Granada. Taking one step back, one could pose the teaser that, since Granada has promised to demerge 2bn-worth of Forte assets, what Forte’s shareholders have done is to accept a wad from Granada in advance of a strategy that Forte was going to implement anyway. But that was a consideration during the bid and what is done is done.

More intriguing is where Granada will find its buyer for the posh hotels it doesn’t want and that it claims were Forte’s misguided indulgence. Principal among these interests is the Meridien chain, which Forte in any event did not own but for which it and now Granada – holds the management contracts.

Meridien effectively holds a right of veto, in that it will be managed by who it wants, rather than who Granada wants. Meridien is said to favour management by Forte. Were Meridien to pull out of any demerger deal, the brand value of the hotels division would be seriously undermined.

Granada approached Marriott with a proposal to swap US catering interests for the hotels and was turned down. Similarly, the French Accor group said that it would manage them for someone else, but was not a purchaser itself. So where is Granada’s “highest bidder”?

Step forward Rocco Forte. He has the support of the hotels. They are what he wanted in the first place. He planned to sell the restaurants to Whitbread. What he needs is institutional support.

That would provide a piquant conclusion to the Granada/Forte story. But, more importantly, it might demonstrate that demerger strategies should be fully explored by shareholders before they go for the wad, because demerger might be what happens anyway. And, even more importantly, it will show the folly of pursuing conglomerate plans when the game has moved on.