Waterfall Holdings, the leisure group, is gearing itself up to make a hostile bid for European Leisure. This follows European's rejection of Waterfall's indicative offer.
Waterfall has withdrawn from friendly discussions with the European board and is to sound out European's institutional shareholders. If Waterfall gets a favourable response from the institutions, it may mount a hostile bid. But European, which is twice the size of Waterfall, last night criticised Waterfall, accusing it of not providing necessary information and for refusing to meet its board and its advisers.
The boards of European, and another leisure group, Allied Leisure, have already agreed a £65 million sterling (€82.5 million) all-share merger of the two companies. This followed pressure from some of the institutional shareholders who want rationalisation in a fragmented industry. The subsequent approach by Waterfall was seen as a move to thwart that get-together.
Waterfall is understood to have been incensed by Allied's statement last Friday, when it said, following the European/Allied merger, the enlarged firm would enter into merger talks with Waterfall.
"In the light of comments made by Allied on Friday, and attributed by it to certain members of the European board," Waterfall said it, "currently considers that it would be inappropriate to make further information in relation to Waterfall available to European. While the companies are not currently in talks, Waterfall will keep the board of European informed concerning its progress".
Waterfall said it expects "shortly" to be in a position to confirm the details of its "superior proposal to European and its shareholders". And it has urged the European shareholders to take no action in relation to the offer from Allied until its confirms its position.
European disagreed and has reiterated that its shareholders should accept the merger with Allied. The first closing date of the recommended offer is Thursday. It had been speculated that Waterfall's indicative offer was higher than Allied but this has now been confirmed. Waterfall said its all-share proposal is "significantly more than 100p sterling per share (149 cents), a premium of greater than 20 per cent to the previously recommended offer from Allied Leisure, which has a current value of only 83p sterling (124 cents) per European share".
Also, the "Waterfall proposal offers a number of other benefits to European shareholders, including a considerably greater share of the combined company post the merger". Under the Allied proposals, the European shareholders would end up with 52 per cent of the amalgamated group, but executive management control would be ceded to Allied.
Waterfall has reiterated that there is a compelling commercial case for a merger with European. "The core activities of the two companies are identical with excellent geographical fit; Waterfall and European are the two leading participants in the UK cue sports market and each has a sizeable portfolio of late night venues. By contrast, Allied is primarily engaged in fast food franchising and bowling, where European has no activities whatsoever."
Ironically, European bought an 18.5 per cent stake in Waterfall last year. That was seen as a prelude to a takeover bid, but Waterfall at the time said it was "not seeking to be taken out".
