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Tata makes $1.2B bid to buy luxury hotel group Orient-Express, joins hands with Italian fund

19 October, 2012

The Tata Group has once again revived its plans to acquire the luxury hospitality group Orient-Express after being snapped at by its management five years ago. Indian Hotels Company Ltd, which runs a chain of hotels in India and abroad under the Taj brand, has made an unsolicited bid to buy 93.1 per cent stake in the luxury hotels group Orient-Express Hotels for $1.2 billion even though it would not get a management control, given the dual shareholding structure of the NYSE-listed firm.

Through its wholly owned entity Samsara Properties, Indian Hotels currently holds 7,130,764 Class A common shares of Orient-Express Hotels, aggregating to 6.9 per cent, which was acquired by the firm in stages during 2007 and 2009. It started buying shares at the peak of the market as a first step in a possible takeover five years ago.

In a statement, Indian Hotels said that at a board meeting held in Mumbai on Thursday evening, the directors gave an “in principle” nod to make an offer to acquire 93.1 per cent of Orient-Express Hotels’ Class A common shares.

It proposes to finance the acquisition and related transaction costs through a combination of debt and equity. The company has said that the total funds required for the transaction is in place. It has an agreement with Montezemolo & Partners, an Italian firm owned by the Montezemolo family who is the manager of Charme II Fund, which will be a minority shareholder in the special purpose vehicle (SPV) set up for the transaction.

“The company believes that a combination of itself and Orient-Express Hotels Ltd is a strategically compelling opportunity for both companies as also for its respective shareholders,” it added.

Indian Hotels has offered to buy the Class A shares it doesn’t own at $12.63 a piece, 40 per cent premium to the scrip’s last traded price on October 17, a day before the offer was made. While the Italian fund, controlled by the family behind Ferrari and Fiat, is likely to bring $100 million to the table, the rest would be through a combination of equity from Indian Hotels and other Tata Group firms besides debt from Bank of America, ICICI Bank and Standard Chartered Bank.

Bank of America Merrill Lynch is advising Indian Hotels in the proposed deal.

The takeover would also include assumption of Orient-Express’ debt of around $530 million as of June 30, taking the enterprise value of the deal to $1.8 billion.

Orient-Express management, which had previously rebuffed Indian Hotels’ attempt to strike a strategic alliance, holds Class B shares of the firm which have 10 times the voting power of Class A shares, making it virtually impossible to make a hostile or unsolicited attempt to take over the management of the firm.

The Tatas propose to retain the separate identity of Orient-Express and the firm will continue to remain an independently managed company.

However, it may just boil down to an imminent hostile takeover attempt even though the Tatas have dissuaded from terming it as such in the past. The two sides met two months ago with the proposed alliance. However, the Orient-Express management once again turned down the offer as per regulatory disclosures.

The Orient-Express umbrella includes some 46 luxury hotels, dining properties, tourist trains and river cruise properties across two dozen markets. The global economic slowdown and less-than-ebullient revival have affected the luxury travel business, and Bermuda-incorporated Orient-Express has divested several non-core properties to deleverage the business.

In light of such a scenario, it remains to be seen how the board justifies turning down the takeover attempt. Most analysts expect it to get down to a to-and-fro negotiation over valuations, which would push up the eventual cost of acquisition for the Tatas.

It may be recalled that the Tatas had originally gained exposure to the firm at around $50 a share five years ago or four times the latest offer. It had, thereafter, brought down the cost of acquisition by subscribing to more shares in 2009 which shrunk the average cost of purchase (more on that here).

Tata watchers say the scenario is similar to what Tata Steel faced in its deal to buy UK-based Corus in 2007, which it eventually sealed at a higher price after a competitive bidding war in the biggest overseas acquisition ever by an Indian company.

If the Orient-Express bid succeeds, it will not only be the biggest overseas acquisition in the hospitality space but will also be one of the largest overseas buys by an Indian firm and the largest in more than a year.

Over the past two years, two large deals have been struck in the hospitality sector where Sahara Group has snapped up Grosvenor House in 2010 and more recently, New York’s Plaza Hotel.

In the past, Indian Hotels also acquired properties, both within the country and abroad, including New York’s The Pierre and Campton Place in San Francisco. The company had earlier worked with PE investors after it roped in Singapore-based PE firm Omega TC Holdings in its subsidiary Roots Corp that operates the budget hotel chain Ginger.

For the Tatas, it would be the fifth billion-dollar global acquisition after Corus (Tata Steel), Jaguar Land Rover (Tata Motors), General Chemicals (Tata Chemicals) and PT Arutmin & PT Kaltim (Tata Power).

Also Read:

Tatas Pick More Shares Of Orient Express; Averages 2007 Deal

Class A Shareholders Of Orient-Express Want To Scrap Dual Structure

Hedge Fund Owners Want To Scrap Dual Ownership At Orient Express

(Edited by Sanghamitra Mandal)


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Tata makes $1.2B bid to buy luxury hotel group Orient-Express, joins hands with Italian fund

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