The Hostile Takeover Of Forte By Granada Accounting Essay


The following case reviews the acquisition of Forte Plc, the longest and largest established UK hotel company by Granada plc. The Granada group a television and leisure conglomerate launched a £ 3.3 billion hostile takeover bid for forte on 22nd November 1995 in one of UK`s most expensive takeovers that decade, and this marked the end of family control of a hotel group created by Lord Forte in the 1930s.

Forte Plc.

"Charles forte started at a remarkably early age of 17, when he joined another member of the forte family who had a lively ice-cream parlour in Weston-super-Mare". Forte`s leading break came at the age of 26 in 1934 when he saw a narrative in the British capital evening standard about a new generation of cafe, a milk bar that had recently been opened in Fleet Street. Soon he attempted to form a partnership with the owner, but this failed. Then finally he acquired a place of his own and with the help of his father who financed him and a friendly equipment supplier opened his own establishment. He faced a difficult initial year, but then the meadow milk bar prospered and then Forte owned five, the newest and biggest in Leicester Square.

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Forte's famed enlargement came in the 30 years after the war when he took the fullest advantage of the ever increasing desire of the British public to go out to eat and drink, to travel, and stay in hotels.

During 1950s forte's deals grew ever larger and more difficult as he took every possible opportunity to acquire the various institutions connected with food, catering or leisure that were trapped. 'The first was the investment in 1953 of the Criterion Restaurant in Piccadilly Circus, This was followed by that of another catering group, Slaters, and where Forte found that buying a company which owned valuable properties were relatively easy. But his pride and joy was the investment in 1954 of the venerable Café Royal'. Charles forte also showed interest in new opportunities, also ventured into service areas on Britain`s first motorways. Thus he transitioned his career from a small family run catering company to building up the largest hotel chain in the UK, having assets ranging from stake in the Savoy group to the Little Chef and Happy Eater chains serving Britain's motorways. Available from: (accessed April 18, 2011).

Sir Rocco forte, Charles only son who trained as a chartered accountant became the chief executive in 1983. Charles forte finally relinquished the chairmanship of the group at the age of 84, and Rocco forte`s son who trained as a chartered accountant became the chief executive in 1983. Many people thought he would adopt his father's inflexible style towards management, but in reality he started to assert his authority by gradually replacing his father's old friends and colleagues on the board. At their expense he recruited executives, who had established track record both in hotel management and global commerce, further he tried to run the firm as a multinational company in keeping with its size and significance.

Sir Rocco became chairman in 1992; he began re-structuring his senior management team, as well as company structure by disposing of ancillary businesses.

Forte`s strategy and the impact of growth on company`s organizational structure (1992-1995)

A reorganization of the firm to create a sharper and more focused company with shorter lines of communication, a lower cost base and a stronger customer orientation.

A reduction in forte`s overall debt by disposing of its stake in Kentucky Fried Chicken, and Gardner Merchant, and reducing its stake in Alpha airport catering.

A refocusing of forte`s management and financial resources on the core hotel and restaurant activities.

A strengthened management team- achieved by recruiting a new team of executives with broad range of skills and international experience.

The introduction of long term incentive plan for senior executives to motivate them to achieve outstanding performance.

The creation of a management team to focus on sales and marketing development and a greater emphasis on quality and service standards.

A programme of refurbishment and re-investment in existing assets, as well as undertaking of several new projects- the additions of Little Chefs, Travelodge's and motorway servicing areas, increasing the capital spend over the years by £175 million.

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Source: Gavin Eccles, Richard E. Teare, Jorge Costa." relating strategy structure and performance." Journal of workplace learning 10, (1998).

Growth, Competitive, Financial strategies and Management style of forte Plc.

According to (Johnson and Scholes, 1993), "Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations".

'Chief executives perspective on strategic planning'

Evolvement of strategic plan as size and structure of the company changed.

Development of a corporate plan in consultation with the various departments.

Experts appointed at different levels who would manage their perspective sectors.

Marketing department was responsible for gathering information from various segments, and circulating it for decision making purposes.

Chief executive to take decisions after consultation with divisional managing directors, about future development and priorities.

'Impact of progress on organizational structure'

Managers and senior executives were entrusted with more autonomy and recognition for achievement.

Expansion in the international market in keeping with forte`s strategy of "building on strength".

Establishment of a clearer and stronger corporate identity with aim to fit forte`s products in a way which will prove beneficial to the customers.

Defining operational standards at all levels and achieving performance and quality targets in every segment of business.

'Role of operating division in planning and performance reviews'

Assessing markets and key competitors and planning strategies.

Planning of more ambitious development plans, and continuous monitoring of strategies with emphasis on direction and future of the company.

All of these issues were critical in influencing the direction of the company during the early 1990s as it could not sustain growth in all divisions, at the same time and pace. The stagnant growth was also compounded by 'recession and the gulf war as profits were severely squeezed from £185 million to £60 million between 1991 and 1992. Another difficulty was the increase in interest rates just at the time forte increased its borrowing for acquisitions at varying rates' and this led forte with more debt consolidation. Forte sought consistence performances regardless of trading conditions, as it is the key measure of a well run business. But for this to come about more cost control along with strong scheme for effectively keeping a competitive advantage was required during the booming years of 1980s.

Forte was the largest hotel operator in the UK and prior to the takeover, 80% of shares were owned by city managers on behalf of ordinary pension fund investors, the largest being MAM(mercury asset management) with a share of nearly 14% of the total share stock. 12% were owned by private investors and 8% by the forte family. In 1995 forte operated 888 hotels with 95,965 rooms and had a presence in 37 countries. It held brands such as meridian, grand, crest, Posthouse, heritage, Travelodge and harvester under its wing.

Granada plc.

"The recent history of Granada group is characterized by rapid growth achieved by means of mergers and acquisitions and the dynamism of its management team". Granada is a leading U.K. player in media and hospitality, with a vast array of activities which compromises of three business divisions:

Rental and computer services, Television, and Leisure and services.

The company's media trading operations include broadcast licenses in British capital and northern England for the Independent Television Network; A TV production unit that is the largest commercial TV production company in the United Kingdom. It also holds various channels available through satellite and digital broadcasting; and part ownership of pay television joint ventures Granada Sky Broadcasting and British Sky Broadcasting (both satellite-based) and British Digital Broadcasting, a digital terrestrial television operation. Through its hospitality division, Granada operates 42 motorway service areas offering fuel, catering, retail, and budget accommodations; a chain of 400 Little Chef roadside family restaurants; the second largest contract catering business in the United Kingdom. It is amongst the U.K. markets leading hotel group, consisting of 162 Travelodge budget hotels throughout the country, 18 hotels in London, 147 Posthouse and Heritage hotels outside of London, and 88 hotels overseas. In addition to its two core areas, Granada owns nearly 500 shops that rent and sell consumer electronics and maintains a commercial rental operation that supplies television and communications products. Available at (April 21, 2011).

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The recent historical development of Granada was not without its ups and downs, and Granada successfully and intelligently dealt with a wide number of organizational issues which can be divided into four distinct phases.

The initial financial instability phase: This phase continued from the latter part of 1980s to 1991, leading to a decline in profits mainly due to an inefficient divisional structure lacking central control, high levels of cash absorbency, and vast amount of money spent on investments and acquisitions, which were poorly planned or controlled.

The business restructuring phase: By 1991granada shareholders and management had realized that they were facing real crisis, gearing had reached 97% with interest cover falling. The management led by Gerry Robinson the new group managing director and chief executive, appointed in november1991, brought about some rapid changes, which included selling of its bingo activities to Bass Plc, and restructuring the computer services division. A rights issue also strengthened the group's finances and also reduced the group's year end gearing to 50%.

The profit and growth phase: This phase was marked by considerable growth, the new management team was in a good position to assess the company`s future strategic direction and its operating effectiveness. Granada produced earnings in excess of 100% in first half of the fiscal year of 1993, with 56% of growth for the full year followed by profit growth of 35% in the first half of 1994. The group produced a free cash inflow of £127 million. In addition to profit and cash inflow the new team achieved better control of management and reporting systems as well as improvised acquisitions which helped in diversification of Granada.

The phase associated with the pressure of success: The major pressure during this phase was to use the cash that was being generated, which is crucial in maintaining the balance between cash resources and growth earnings. Observers' suggested relieving this pressure through acquisitions because companies who avoid acquisitions are not able to keep up the growth curve.

Granada group performance indicators 1987- 1991(£million)






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Source: Gavin Eccles, Richard E Teare, Jorge Costa, Hadyn Ingram, Tim Knowles. (1997) 'The Granada takeover of forte: a managerial perspective', management decision volume 35

The Granada bid for forte and its outcome

On the 22nd of November, Granada Plc launched a hostile bid for the takeover of Forte Plc valued at £3.2 billion. The Granada offer followed the announcement of an increase in pre-tax profit by 32% to £351million, with a turnover of £2.38 billion a 14% rise in the year September to 1995. The investors were offered four New Granada shares and £23.25 cash payment for every 15 forte shares. Granada's offer therefore was seen as high for a company where growth had been rather slow.

The battle between Granada and forte was mainly constructed around the financial strength, management skills and proven track record of Granada against a company which was consolidating its business and had failed to deliver the best value for money to its shareholders.

In a document published on 14th December 1995, Granada sought to highlight the main differences between the two companies:

'It stated that Forte has mortgaged its future and therefore has materially impaired future values. It also claimed that Forte`s management sold core businesses with good prospects too cheaply and thus the management of Forte has lost credibility due to lacklustre record and ill conceived proposals. Granada on the other hand with its increased offer not only gives value for money at present but also enhances the likelihood of good returns in the future as well. Secondly Granada would benefit by holding both hotels and restaurants and release their true profit potential, and in addition to all this Granada has been able to provide shareholders significant returns'.

"Gerry Robinson referred that the New Granada rather than becoming an unwieldy conglomerate would be a balanced modern day leisure company with potential synergies and protection against cyclical markets". Its plans were mostly solidly illustrated by frequent claims that it could save £100 million in profits from Forte`s operations in the first year of management. He also explained how the acquisition would balance Granada with 29% in leisure and services, 25% in television, 22% in rental and 24% in the most profitable and predictable end of the hotel market. Granada thus defined its strategy as emphasizing focus for growth and balance against risk.

Granada in its final offer document posed questions to Forte shareholders, that if they accept Granada's offer they will get:

Better value at present as well as in future

A management team with a track record of delivering

12.5% gold card discount at Forte restaurants and hotels, including Little Chef and Travelodge.

On rejection of Granada's offer you get:

A administration that has failed consistently to deliver profits, even prior to the sale of cash generating businesses.

A company that lacks direction and has a mounting debt of £900 million.

Granada's internal financial control procedures.

Financial reporting

A rolling three year strategic review process which is part of a comprehensive planning system, together with an annual budget approved by the board

The results of operating units are reported monthly, compared against individual budgets and forecast figures are reviewed on a month by month basis.

Functional reporting

The risks facing the business are assessed on an ongoing basis

A number of key areas such as treasury and corporate taxation matters are subject to regular review by the board. Other areas such as detailed insurance risk management and legal matters come under the direct control of the executive team and are continually monitored.

Investment appraisal

The group has a clearly defined frame work for controlling capital expenditure (including appropriate authorisation levels) beyond which such expenditure requires the approval of the board.

A prescribed format for capital expenditure appraisal places emphasis on the commercial and strategic logic for the investment and due diligence requirements in the case of business acquisitions. As a matter of routine, projects are also subject to post-investment appraisal after an appropriate period.

Source: Gavin Eccles, Richard E. Teare, Jorge Costa." relating strategy structure and performance." Journal of workplace learning 10, (1998).

Thus the strategy adopted by Granada fits the raider theory, wherein they made a public tender for shares at a fixed price to take control of another company at the expense of paying higher price. Although there are various theories to explain this behaviour, the most commonly held is the desire to achieve rapid benefits through the synergies that can be produced.

The bid outcome was announced on 23rd Jan 1996, and Granada won the support of 65% of forte`s shareholders. This decision was influenced by Granada's offer to raise the bid price from £3.38 to £3.8 billion as well as the last minute decision by Mercury asset management to back Granada's offer. MAM concluded that Granada's bid and their subsequent plans would yield better come backs and prospects for maximising the value of Forte`s assets.

The bid succeeded because shareholders and fund managers viewed Forte as a company which had been underperforming for a number of years due to a failed management, who were inefficient at cutting costs and were slow to adapt to market and shareholders demands. While Granada with its acquisitions and takeovers and management skills offered shareholders more financial gains and future security.

Evaluation of events after 1995 for Forte and Granada

Forte: After the takeover forte Rocco Forte was left with around £350 million in cash. Forte set up his own chain of hotels - initially known as RF Hotels and re-branded as The Rocco Forte Collection after the return of the Forte brand name. He bought the Balmoral Hotel, Edinburgh and Brown's Hotel, London for £51.5m. The Rocco Forte Hotels group now operates 11 luxurious hotels around Europe, with three more coming up within the period 2008-2009.

Granada: After the takeover, Gained thereby were the Travelodge sequence of budget hotels in the United Kingdom (to which were added the Granada lodges, converted to the new brand), after the coup. '147 "provincial" hotels located outside of the British capital, under the business-traveller-oriented Posthouse and the more significant Heritage brands; 17 London "trophy" hotels in the Savoy Hotel group, in which Granada now owned a 68 percent stake; and 103 Meridien and Exclusive luxury hotels, generally located overseas.' Also added through the Forte acquisition was a series of 400 Little Chef roadside family eating houses, and French motor service areas, as well as 21 Welcome Break motorway service areas in the United Kingdom, which were sold for antitrust reasons in February 1997 for £473 million to Investcorp, a Bahrain-based investment group. In December 1997 Granada sold the French motorway service areas, for £83 million to Autogrill, an Italian roadside restaurant chain. In April 1998 Blackstone Hotel Acquisition Co., a U.S. investment company, agreed to buy the Savoy Group for £520 million.

The Exclusive hotels were also divested, leaving Granada with four core lodging brands: Travelodge, Posthouse, Heritage, and Meridien. Having already progressed through its history from movies to TV to rental, Granada Group had now clearly staked its future to hospitality. Available from: (April 25, 2011).


From the above case study analysis it is evident that no company can claim to be safe from such business turnarounds.

Therefore companies need to develop a solid strategy which can be easily implemented. And for the strategy to be successful, is must be in line with the firm's goals and values, with its external environment, with its resources and capabilities, and with its organization and systems. Lack of consistency between the strategy pursued by a firm and its external and internal environments is a common source of failure. Therefore certain issues need to be taken care of while devising a strategy.

The external environment of the business bureau comprises the whole ambit of economic, social, political, technological factors that influence a firm's decisions and its performance; therefore organizations require appointing people who have in-depth knowledge about the factors that can affect have an impact on an organization.

How should the organizations seek to develop and validate forms of competitive advantage now and in future.

The management needs to have the ability to identify chances when they arrive and show the clarity of direction and the flexibility needed to exploit these opportunities.

Optimal financial planning taking into account, cost control procedures and proper utilisation of funds.

Moreover while formulating a strategy companies should see to it that they don't overstretch the financial, logistic, and managerial resources.


Gavin Eccles, Richard E Teare, Jorge Costa, Hadyn Ingram, Tim Knowles. (1997) 'The Granada takeover of forte: a managerial perspective', management decision, volume 35 (1):5, pp.5-9, Emerald publishing. Available from: (April 21, 2011).

Gavin Eccles, Richard E Teare, Jorge Costa. (1998) 'relating strategy structure and performance', Journal of workplace learning, volume 10 (2):18, pp.63-73, Emerald publishing. Available from: (April 20, 2011).

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Michael J. Stahl, David W. Grigsby. (1997) Strategic management: total quality and global competition. Blackwell publishing, pp.133-134.