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Tatas scrap $1.2B bid for Orient-Express

08 November, 2013

Tata Group’s flagship hospitality firm and India’s largest hotel chain operator Indian Hotels Company Ltd (IHCL) has decided not to pursue further its takeover bid for luxury hospitality chain Orient-Express Hotels Ltd. In a meeting on Friday, its board took a call not to pursue the proposed transaction and all contracts that were entered into to facilitate the bid, have all since been cancelled.

This follows a rejection of the bid by the board of Orient-Express Hotels which had communicated its inability to consider IHCL’s offer as it reckoned it was not an opportune moment for them to consider a sale of their company.

This comes a year after IHCL, which runs a chain of hotels in India and abroad under the Taj brand, made an unsolicited bid to buy 93.1 per cent stake in 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, IHCL holds a minority stake of Orient-Express, 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 bid six years ago.

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

IHCL had 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.

Orient-Express last traded at $14.6 a share on NYSE.

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).

While the Italian fund, controlled by the family behind Ferrari and Fiat, was likely to bring $100 million to the table, the rest would be through a combination of equity from IHCL and other Tata Group firms besides debt from Bank of America, ICICI Bank and Standard Chartered Bank.

Bank of America Merrill Lynch was advising IHCL in the proposed deal.

The takeover would have also included assumption of Orient-Express’ debt taking the enterprise value of the deal to $1.8 billion.

Orient-Express management, which had previously rebuffed IHCL’s 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 proposed to retain the separate identity of Orient-Express and the firm will continue to remain an independently managed company.

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

In the past, IHCL also acquired properties, both within the country and abroad, including The Pierre and Campton Place in San Francisco.

(Edited by Joby Puthuparampil Johnson)


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Tatas scrap $1.2B bid for Orient-Express

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