InterContinental Hotels Group tried to play down recent takeover speculation in the company, but acknowledged that its shift to a broadly-based management and franchised hotels operator could prove attractive to a private equity buyer or other franchised hotel operators.

'There is a lot of speculation around at the moment and I accept that our share price probably has an element of bid premium priced into it,' IHG's chief executive Andrew Cosslett told AFX News in a telephone interview this morning.

Shares in IHG were recently driven higher amid speculation that private equity group Permira was considering a takeover approach.

Cosslett refused to comment this morning. However, analysts reckon IHG's shift to a managed and franchised hotels operator has heightened interest in the group and that a number of private equity firms may be attracted to the large cash flows and revenue streams on offer.

Investment house UBS reckons the group could be worth 14.00 stg a share on a take-out bid. Other analysts have suggested that US operator Starwood -- which operates the Sheraton and Westin brands -- could be interested given its strong experience in franchising and management contracts.

Cosslett today accepted the possibility that as the market and investors came to better understand IHG's new franchised model, how the group may be viewed differently. 'I can see how we could be viewed as attractive to a potential buyer and anything is possible, but as far as we are concerned we're not planning on making any changes to our current strategy,' he told AFX News this morning.

Today, the group's shares were trading 29 pence lower at 939-1/2 at 10.30 as the wider sell-off in blue chips and equities continued in London this morning. He was speaking after the release of IHG's first quarter figures for the period to March 2006. These showed a rise of 40 pct in continuing operating profits to 42 mln stg, reflecting a good performance from North America where RevPAR -- Revenue Per Available Room -- was up by 13 pct in the quarter.

Operating profits from the group's franchised business grew by 25 pct to 55 mln stg, while managed profits were 36 pct higher at 19 mln stg. The Middle East region also did well with a 28 pct increase in RevPAR, while Germany and France also showed some recovery. In London, the Holiday Inn estate grew RevPAR by 3.0 pct.

Cosslett said the good trading conditions had continued throughout April and that the outlook for rate increases as the year progressed was positive. He also said the group remained on course to achieve its target of 50,000-60,000 new room additions by the end of 2008 and pointed to 7,140 new rooms in the Americas and 1,200 in Europe, the Middle East and Asia. He said that eleven hotels and 6,470 new rooms were signed in China, including two InterContinentals and the world's largest Holiday Inn Express. 'There is a strong appetite for IHG's hotels brands in China,' he added.

Cosslett also hinted that further cash returns may be considered dependent upon the company's debt position and cash requirments and the forthcoming sale of seven InterContinental hotels in Europe. The group, which has sold off the bulk of its freehold hotel assets as part of its shft to a franchised operator, will have returned 2.75 bln stg to shareholders following the latest 500 mln stg special dividend payment -- expected in June.

Some analysts reckon a further 700 mln stg could be returned to shareholders in 2007 following the sale of the seven European hotels and the group's improving debt position. 'Its something we'll look at nearer the time. But we've always said we would look to balance the working cash requirements of the group with the need to return excess funds to shareholders,' said Cosslett.

By Malcolm Locke: malcolm.locke@afxnews.com

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