Focus still on Ryan despite lack of bids

The non-emergence of a bid for Ryan Hotels will not remove the focus from the group. Indeed, the spotlight is now firmly on Ryan Hotels, which owns the Gresham and Royal Marine hotels and eight others. Even without a bid, the group has been quietly transforming itself. This was reflected in a 25 per cent rise in the share price this year, prior to the bid speculation. The speculation added a further 20 per cent at one stage to €1.20; that gain is now back to 13 per cent at €1.13.

The group has a target return of at least 20 per cent on new investments, which is a multiple of what it gets at present. If it manages to get the average up significantly, it will be good news for shareholders. In the past 12 months it has purchased Cork's Metropole Hotel and the 188-room Charles Dickens Hotel in central London. Further acquisitions are planned.

Part of its plan involves rebranding. While the Ryan name is used in most of the Irish hotels and in the Hyde Park Ryan Hotel in London, it does not use the group's name in the mainland European hotels, which is surprising. The Amsterdam hotel, for example, is still called Memphis Hotel, and the Brussels hotel is called Le Belson Hotel. Surely a single corporate identity would help the marketing of the group?

Apart from rebranding, it is also undergoing a programme of unlocking value in its land banks surrounding its five Irish hotels. Perhaps the greatest potential is the five-acre site around its Royal Marine Hotel in Dun Laoghaire. In order to release maximum value it is to seek planning permission for a mixed use development.

The group is financially stronger than what is readily apparent from the accounts. The chief executive, Mr Patrick Coyle, has said the gearing appears high at 71 per cent but if bank debt is used, and finance leases are excluded, it comes down to 50 per cent. Also, the interest on the leases is negligible and the interest is well covered at 4.5 times, which gives it plenty of financial room to expand.

A new accounting rule, FRS 15, which treats maintenance differently, will make no difference to the group's underlying trading. However, it will have the effect of boosting the earnings before tax, interest and depreciation by about €2 million per annum. This could have a bearing on the value placed on the company in a takeover bid, as institutions are increasingly using this as a ratio.

However, according to last week's annual general meeting, a takeover bid is not imminent. That meeting had a much happier atmosphere than the previous year at which shareholders bemoaned the bombed-out share price - then 71 cents, and its vulnerability to a takeover bid.

Yet the potential takeover candidates waited for the share price to rise considerably before making a move. Israeli group Red Sea Hotels bought a 16.6 per cent stake at the market price of €1 per share in May. Two weeks later the two Donegal hotelier brothers, Mr Brian and Mr Sean McEniff, announced that they had built up a 5.3 per cent stake at around the same price.

While neither group has sought board representation, the Ryan board is likely to be opposed to any such move, particularly as the motives for the share purchases are unclear. The location of the McEniff chain - mainly in the north-west - would make geographic sense for Ryan but would go against its strategy of having hotels in areas of high population density and chasing more corporate business. Red Sea Hotels is mainly in property but has minority stakes in a number of companies, including hotel companies.

The possibility of a bid appears to have receded for the moment. However, sooner rather than later, the parties are likely to show their hands. The Ashdowns, who sold their shareholding to Red Sea Hotels, were friendly to the Ryan group during the Conor McCarthy days. The Israeli company, however, has no such attachment.

The Ryan board is determined to pursue its strategic policy. But with a 3.7 per cent shareholding - plus a further 3.7 per cent if options are taken into account - it is not in a strong position to fend off a bid. However, Ryan has 8,700 shareholders, one of the largest for an Irish company - many are long standing, and loyal shareholders, since the Dermot Ryan days. They are likely to be vocal if any approach is not to their liking.