- Price said to be high compared to Marriott's Starwood purchase
- FRHI deal gives Accor access to valuable U.S. luxury markets
Accor SA may be paying too much to acquire the owner of the luxury Fairmont, Raffles and Swissotel brands as the French company tries to protect itself against online competitors and expand its U.S. and Asian reach.
"While we see a long-term rationale in the deal -- stronger U.S. and luxury positioning, scale and enhanced growth potential -- we struggle to reconcile these positives with the price that Accor is paying, which we consider to be very high," Barclays analyst Vicki Stern wrote in a note on Thursday.
Europe’s biggest hotel operator agreed to buy FRHI Holdings Ltd. for about $2.9 billion in shares and cash from Qatar Investment Authority, Prince Alwaleed Bin Talal’s Kingdom Holding Co. and Oxford Properties Group Inc., Accor said in a statement after the market closed on Wednesday. QIA and Kingdom Holding will become Accor shareholders, with 10.5 percent and 5.8 percent of the share capital, respectively.
Hotel companies are bulking up to defend themselves against the growing heft of online travel agents such as Expedia Inc., which reduces hoteliers’ power in setting rates, and against competition from home-rental companies such as Airbnb Inc. Global lodging deals rose to $46 billion through November, beating the $37 billion record set in 2014, according to data compiled by Bloomberg Intelligence. Last month, Marriott International Inc. inked the biggest deal in the industry since 2007 by agreeing to buy Starwood Hotels & Resorts Worldwide Inc. in a $12.2 billion deal.
Accor is paying about 21 times its 2016 expected profit, as defined by earnings before tax, interest, depreciation and amortization, while Marriott paid about 11.9 times, Stern said. Accor didn’t immediately respond to a request for comment.
Price of Luxury
"Luxury comes at a price, but it’s a very high price," said Matthias Desmarais, an analyst at Oddo & Cie in Paris with a buy rating on the stock.
Accor was unchanged at 38.86 euros at 12:30 p.m. in Paris trading, after falling for three straight days. The shares are up 4 percent this year.
Accor, which operates the Ibis and Sofitel chains, has 3,800 hotels worldwide. FRHI, based in Toronto, operates more than 100 high-end hotels, including Manhattan’s Plaza, London’s Savoy and Raffles in Singapore, and has 40 under development. The deal will give QIA an opportunity to diversify its hotel holdings into emerging markets in Asia, Africa and Latin America, according to a person with knowledge of the matter who asked not to be identified because the information is private.
The company’s earnings per share will drop by as much as 5 percent in the next two years in the wake of the acquisition, Bloomberg Intelligence analysts Margaret Huang and Tim Craighead said in a report. Accor said the transaction will boost its earnings per share after two years, with 65 million euros ($71 million) in revenue and cost savings expected to take full effect by the third year.
The deal will help Accor fill gaps in its business, said Wouter Geerts, a travel analyst at Euromonitor International. The acquisition will more than triple the company’s assets in the U.S., the world’s biggest travel market, and speed up its expansion in China, where Swissotel has a long development pipeline.
Accor, which has more than half of its hotels in Europe, is seeking to take advantage of particularly strong growth in the U.S. and Asia. It also wants to tap into rising demand from the wealthiest travelers, as a way to complement its low- and mid-scale brands such as Ibis and Novotel, Geerts said.
"Accor wasn’t benefiting from the growth in the luxury segment and they’d been suffering a bit from the European economy," Geerts said. "It’s a very volatile market and the larger you are, the more powerful you are."