Shares of Indian Hotels Co. fell the most in eight months after the country’s biggest lodging operator offered to buy Orient-Express Hotels Ltd., owner of New York’s 21 Club and Rio de Janeiro’s Copacabana Palace.
Indian Hotels declined 4.8 percent to 66.95 rupees as of 9:41 a.m. in Mumbai trading, set for the biggest drop since Feb. 7. Orient-Express rose 23 percent to $11.05 at the close of New York trading, the biggest increase since March 2009.
The operator of the Taj Mahal Palace in Mumbai and the Pierre Hotel in New York will buy the remaining 93.1 percent stake it doesn’t own in the Hamilton, Bermuda-based Orient-Express, valuing the company at $1.86 billion, including net debt, Indian Hotels said in a statement yesterday.
Indian Hotels and other entities associated with Mumbai-based Tata Group proposed to buy the balance of Orient-Express for $12.63 a share in cash. That represents a 40 percent premium over the closing share price yesterday.
“It seems clear that the company wants to position itself as a global hospitality chain,” Mumbai-based analysts Saurabh Kumar and Gunjan Prithyani at JPMorgan Chase & Co. said in a note to clients yesterday. “If the acquisition happens, Indian Hotels will get ready access to a high end customer base.”
Indian Hotels is expanding its overseas footprint. It bought the Ritz-Carlton in Boston in 2007 for $170 million from Millennium Partners and renamed it Taj Boston. In 2005, the company re-entered the New York market after six years with the rights to manage the 201-room Pierre.
“This premium cash offer represents a compelling value proposition for the company shareholders, especially in light of the current fragile state of the global economy and the lack of clarity about the prospects for recovery,” R.K. Krishna Kumar, vice chairman of Indian Hotels, said in the letter to Orient-Express filed yesterday with the U.S. Securities and Exchange Commission.
The board of Orient-Express will evaluate the proposal, the company said yesterday in an e-mailed statement.
“Orient-Express will definitely consider the offer,” said Chris Agnew, an analyst at Stamford, Connecticut-based MKM Partners who has a buy rating on the hotelier. “Otherwise they will have to show shareholders how they can create more value by being independent. They are under-invested in some markets, and with a larger company with access to capital behind them, making investments would be a lot easier.”
Montezemolo & Partners, a family-owned Italian fund manager, would invest $100 million for a minority stake in Orient-Express through its Charme II Fund as part of the transaction, Indian Hotels said. The Indian hotel operator has also secured debt financing from Bank of America N.A, ICICI Bank and Standard Chartered Bank.
Indian Hotels has held a portion of Orient-Express since 2007, when it paid $211.3 million for a stake in the company. Five years ago, after the purchase, Orient-Express rejected an attempt by Indian Hotels to pursue strategic discussions.
Should Orient-Express reject the latest offer, a hostile takeover would be unlikely because of the company’s governance structure, according to Agnew.
“It would have to be a friendly merger agreement because Orient-Express has a dual-class share structure which would make it impossible for Indian Hotels to get enough voting shares in a hostile situation,” he said.
Indian Hotels, valued at $1.05 billion, operates 115 properties around the world. In April it restarted efforts to increase its stake in Orient-Express, two people with knowledge of the matter said at the time.
Kumar said in yesterday’s letter that his company is “disappointed” that Orient-Express hasn’t been interested “in exploring a transaction involving a significant equity investment” by Indian Hotels. The company is therefore proposing a complete takeover, he said.
Bank of America Corp.’s Merrill Lynch unit is Indian Hotels’ financial adviser on the proposed transaction.