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TEMPUS

Will hoteliers meet under one roof?

Intercontinental Hotels Group has 5,918 hotels in more than 100 countries
Intercontinental Hotels Group has 5,918 hotels in more than 100 countries
IHG MEDIA LIBRARY

The brevity of the bid speculation aimed at Intercontinental Hotels Group last month gave the impression that it was probably no more than rumour-mongering designed to ramp the shares and turn a quick buck for the perpetrators (Dominic Walsh writes). If Accor, the soi-disant suitor, really had looked at its British rival, it hadn’t been looking very seriously.

Yet a putative entente cordiale between IHG and Accor is far from a new concept. As long ago as 2014, Marcato Capital, a pushy American hedge fund, put pressure on IHG to consider a tie-up with one of its peers, providing a list of potential partners including Accor. Marriott International’s mega-merger with Starwood Hotels two years later sparked fresh speculation, yet little or nothing seems to have happened — at least in public.

One interesting facet of the recent speculation is that it surfaced in two completely different places. When Le Figaro put out a story mooting the idea, The Times had spent the best part of a week trying to stand up a similar rumour but was beaten to the draw by its French cousin. It would be easy to argue that the two newspapers were talking to the same sources, except that the two stories contained very different elements.

According to Le Figaro, Sébastien Bazin, the Accor chief executive, had put together a team with Jean-Jacques Morin, his finance chief, and the investment banks Centerview and Rothschild, to investigate a possible approach to IHG.

Meanwhile, The Times was told that one of the ideas involved Accor seeking private equity backing to make a play for IHG. Mr Bazin, 58, is a former head of the investment group Colony Capital Europe and the two companies have a close relationship, with Colony having a sizeable stake in Hotelinvest, the French hotel group’s separately held property arm.

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One thing that almost everyone is agreed on is that a combination of the two operators is an obvious move given their complementary nature, both in terms of brands and geographically. IHG has 5,918 hotels in more than 100 countries, most of them franchised. Its brands include Holiday Inn, Crowne Plaza, Indigo, Kimpton and Staybridge Suites and it has almost 2,000 hotels under development.

Accor has 5,100 mainly managed hotels in 110 countries under such brands as Raffles, Sofitel, Novotel, Mercure and Ibis. It also controls the luxury Fairmont brand which includes the Savoy Hotel in London.

One of the big attractions to the French group of a takeover of IHG would be the FTSE 100 group’s American business, where it controls 41 per cent of the rooms, mainly through its Holiday Inn and Holiday Inn Express brands. IHG is also the biggest international operator in China, speaking for 31 per cent of the room stock. Accor is already Europe’s biggest hotel group, so the enlarged business would make a compelling proposition.

Accor’s market value of €7.08 billion (£6.36 billion) is some way below IHG’s market cap of £8.09 billion, having been hit worse by the Covid crisis, although the disparity could be addressed by the involvement of Colony Capital or another private equity firm. Share prices of both companies are up by more than 10 per cent since the articles appeared, with IHG running up from £40 to almost £45. This could suggest the market is warming to the idea of a merger, although it could be the result of the “small but steady improvements in occupancy and revpar” reported by IHG at last month’s interim results.

The absence of any stock market announcement by either company suggests there are no active discussions under way, although most experts are expecting the pandemic to speed up the pace of consolidation as companies struggle to rebuild shattered revenue streams.

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Advice Buy
Why IHG is a strong, well-run business and even without an Accor bid its shares should prosper

First Group
It doesn’t really matter whether people think trains and buses are public utilities that should be taxpayer-funded. That is now the reality in Britain, for however many months and years it takes the country to get back to the sort of normality that we called 2019 (Robert Lea writes).

But even those benchmark days before the pandemic were not normal for the public transport industry. The semi-privatised train sector was in such a state that everyone had finally agreed that the franchise system employing private contractors to run the railways was deeply flawed, had become unworkable and needed to be scrapped. Quite what the prevaricating department for transport replaces it with is anyone’s guess.

Meanwhile on the buses, operators have long had to cope with inadequate road infrastructure at a time when the need for technology investment, ranging from
ticketless travel to zero-emission vehicles, is huge.

: The Wider Image: Along the U.S. - Mexico border fence
First Group services in North America are operated under the First or Greyhound brands
MIKE BLAKE/REUTERS

That is why First Group’s stock has been sputtering along at record lows.

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Yesterday the shares popped up over 25 per cent on reports that American private equity is taking an interest in buying First Group’s US interests, running yellow school buses and local bus shuttles. There is nothing new here. The First Group board capitulated under shareholder pressure to do just this in March, though the pandemic has slowed the process to sell operations with $3.8 billion of pre-Covid annual revenues.

Whatever First can get for its American businesses, as a forced seller in a pandemic it’ll be less than it hoped. It will do little to alter the fundamentals of a company that has warned it may not be able to meet its obligations on £1.5 billion of debt; whose equity is valued at less than £500 million; and which has lost £722 million in the past three years and has not paid a dividend since the last time it nearly went bust in 2013.

There is little to no case for investing in a UK public transport stock.

Advice Avoid
Why This is a sector on the road to nowhere

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