Morgan Stanley May Scrap Sale of Stake in Chinese Motel Chain

Morgan Stanley may scrap the sale of a 59 percent stake in Shanghai Motel Management Ltd. after receiving lower-than-expected offers, two people with knowledge of the matter said.

Home Inns & Hotels Management Inc. (HMIN), China’s second-biggest budget hotel operator, and China Lodging Group Ltd., which operates the Hanting Inns & Hotels chain, submitted final bids late last month, the people said, asking not to be identified. The people declined to give the size of the offers, and said Morgan Stanley is still in talks with the bidders.

Shares of Home Inns and China Lodging, which trade on the Nasdaq Stock Market, have fallen at least 14 percent in the past six months as accelerating inflation in China forced the central bank to tighten monetary policy. The Wall Street Journal reported in February that the deal might value Shanghai Motel Management at about $1 billion, citing unidentified people.

Noel Cheung, a Hong Kong-based spokeswoman at Morgan Stanley (MS), declined to comment. Wu Jiajun, a spokesman at China Lodging Group, and Home Inns Chief Financial Officer Yan Huiping said they couldn’t comment.

The stock drop caused bidders for the stake to lower their valuations for Shanghai Motel Management, one of the people said. The company isn’t publicly traded.

Accor SA (AC), Europe’s largest hotelier, and 7 Days Group Holdings Ltd. (SVN) had earlier expressed interest in the stake, the people said.

Shanghai Motel Management operates the Motel 168 brand in China. Morgan Stanley bought 20 percent of the company in 2006 for $20 million, and later raised its holding to 59 percent, according to the WSJ report.

To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

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