Lehman Brothers and Starwood to save Le Méridien

The future of debt-laden hotel chain Le Méridien has been secured following an estimated £700m takeover of the group by investment bank Lehman Brothers.

Lehman, together with US-based hotel company Starwood, acquired the outstanding £725m debt of the company last week at an undisclosed discount. The deal will make Starwood, which will fund $200m (£113m) of the debt, and Lehman the de facto owners of the 126-strong hotel chain.

The two businesses have entered into an exclusive agreement to negotiate the recapitalisation of the company over the coming months.

Lehman's decision to work with Starwood follows the collapse of a previous joint rescue attempt with Hyatt, another US-based hotel group. Under the new deal, Starwood is expected to manage the hotel chain, with several of its directors sitting on the Le Méridien board. The Le Méridien name is likely to be retained.

Le Méridien has been trying to restructure its financing since May 2003 after breaching its bank covenants and slumping below the value of its £1b debts.

Subsequent to that, the Royal Bank of Scotland, which owns 11 of the group's UK hotels, took back control of the properties and placed the London flagship Grosvenor House and Waldorf hotels into administrative receivership.

The Waldorf has now been taken over by the UK's Hilton Group, while US-based Marriott International won the bidding to take over management of the Grosvenor House hotel.