Four Seasons Seen Drawing China’s Richest Man: Real M&A

In the hunt for luxury hotel management companies in America, China’s richest man may set his sights on Four Seasons, or several smaller boutique chains.

Wang Jianlin, owner of commercial land developer Dalian Wanda Group, said this month he hired two investment banks to buy hotel management companies, mostly in the U.S., where a recovery in travel is boosting lodging demand. Closely held Four Seasons Hotels & Resorts, operator of the namesake properties in Manhattan and around the world, would give Wang a high-end, globally recognized brand, said Robert W. Baird & Co.

With few big luxury names officially for sale, he may settle for a compilation of smaller, lifestyle hoteliers such as Morgans Hotel Group Co., which manages Mondrian and Delano properties, FBR & Co. said. While Morgans’s enterprise value is the most expensive relative to profit among U.S. lodging peers, Dalian Wanda’s revenue is forecast to exceed $100 billion by 2020 and Wang has a net worth of $12.7 billion. Wang’s ambitions may also lead him to high-end boutique chains Viceroy Hotel Group in Los Angeles and Kimpton Hotel & Restaurant Group LLC of San Francisco, SunTrust Robinson Humphrey Inc. said.

“It’s part of a larger trend,” James Macdonald, Shanghai-based head of China research for Savills Plc, said in a phone interview. “Chinese companies are starting to look at diversifying out of China and bringing intelligence and market experience from operating overseas back to the China market. It’s also about taking experience of the China market overseas to try to get the best of both worlds.”

Building Hotels

A Beijing-based representative for closely held Dalian Wanda declined to comment on potential takeover targets.

Dalian Wanda plans to build five-star hotels at a rate of 15 per year and in as many as 10 major cities around the world, including projects planned for London and New York, Wang said in an interview with Bloomberg News at the World Economic Forum in Dalian this month. The 58-year-old billionaire said he has been in talks with “several” companies in the past year.

Wang is China’s wealthiest person, according to the Bloomberg Billionaires Index.

In addition to 40 hotels, Dalian Wanda runs at least 49 commercial properties across China and 40 department stores from Beijing to Nanjing, according to its website. The 25-year-old company is owned by Wang and his son Wang Sicong.

Hotel chains in the U.S. have benefited from demand in the lodging industry, with shares of Starwood Hotels & Resorts Worldwide Inc. and Marriott International Inc. reaching multi-year highs in May. Hilton Worldwide Holdings Inc., owned by Blackstone Group LP, this month filed to raise $1.25 billion in an initial public offering.

Industry Growth

Revenue per available room, the industry’s measure of average daily room rates and occupancies, is still expanding. After rising 6.8 percent last year and 8.2 percent in 2011, data provider STR forecasts it will increase 5.7 percent this year and 6 percent in 2014.

“For any buyer like Wang, it is a very good time to buy into this sector since we still have several years ahead of growth in the hospitality industry,” said Nikhil Bhalla, an industry analyst at FBR in Arlington, Virginia.

Four Seasons, with 91 luxury properties in 38 countries, would fit Wang’s ambitions, according to David Loeb, an analyst at Milwaukee-based Robert W. Baird. The Toronto-based company hired Allen Smith, the head of Prudential Real Estate Investors, as chief executive officer in August to help the hotelier expand.

Four Seasons

Bill Gates’s Cascade Investment LLC, Prince Alwaleed Bin Talal’s Kingdom Holding Co. and founder Isadore Sharp took Four Seasons private in 2007 for about $3.4 billion.

“The brand that would fit Wang’s ambitions perfectly is Four Seasons,” Loeb said in a phone interview. “Prince Alwaleed loves Four Seasons but he’s a practical guy,” he said, adding that a sale would be possible at the “right price.”

Sorya Gaulin, a spokeswoman for Four Seasons, declined to comment when asked if the company would be willing to sell.

If Four Seasons isn’t for sale, Wang may have to settle for a compilation of smaller high-end hoteliers, including New York-based Morgans or Viceroy, Loeb said.

“It’s a slow process,” Wang told Bloomberg in the interview earlier this month. “Those companies we liked, they might not be willing to sell. Those willing to be bought, we might sometimes feel the brand isn’t as good.”

Among boutique hotels that cater to an affluent younger clientele, Morgans, Kimpton or Viceroy could be likely candidates for Wang, said Patrick Scholes, an analyst at SunTrust in New York.

Ron Burkle

“All of them are high-end with locations in urban markets,” Scholes said in a phone interview. “This presents the opportunity to get Chinese travelers into these hotels and introduce them to these brands that can ultimately then be brought to or be expanded in Asia.”

Kimpton CEO Michael Depatie and a spokesman for Morgans declined to comment on whether the companies would be interested in selling to Dalian Wanda. A representative for Viceroy didn’t respond to requests for comment.

Morgans climbed to an almost two-year high in early June when it said it would consider a sale after receiving takeover interest from five potential buyers. Morgans has since had a tumultuous few months, with the board ousted and CEO Michael Gross resigning. Investors including Ron Burkle’s Yucaipa Cos. and Kerrisdale Capital Management LLC have called for another new slate of directors to help sell the company.

Infinity Pools

Morgans operates 12 hotels, known for their stylish decor and amenities such as infinity rooftop pools. The hotelier’s Hudson in New York, the Mondrian in Los Angeles and the Delano in Miami’s South Beach were opened by Ian Schrager, who has been credited with the invention of the boutique-hotel concept.

“Morgans has three good brands, brands whose value is arguably much bigger than their actual footprint because they are in key cities and well known throughout the U.S. and abroad,” Chris Agnew, an analyst at Stamford, Connecticut-based MKM Partners LLC, said in a phone interview.

He estimates that Morgans should be valued at $9 a share as a standalone and that an acquirer would have to pay 30 percent to 50 percent more. Such a price tag would top $900 million, including net debt.

After rising 25 percent this year, Morgans closed at $6.95 yesterday. With an enterprise value 34 times its earnings before interest, taxes, depreciation and amortization in the last 12 months, Morgans is more expensive than every other U.S. lodging stock, data compiled by Bloomberg show.

Today, Morgans rose 4.3 percent, the most in three months, to $7.25, giving the company a market value of $237 million. It was the biggest gainer in the Russell 3000 Leisure Index of 103 companies.

Beverly Hills

In addition to Morgans, closely held Viceroy may appeal to Wang with its 16-property portfolio that includes the L’Ermitage Beverly Hills and the Yas Viceroy Abu Dhabi, said FBR’s Bhalla. Kimpton, the operator of 62 U.S. properties, some of which feature floor-to-ceiling bookcases and lush velvet drapes in guest suites, may also fit the bill, Bhalla said.

It would be more efficient for Wang to target only bigger, top hotel operators, the same way he pursued AMC Entertainment Holdings Inc. last year to create the world’s biggest cinema owner, said Kenny Wu, a Hong Kong-based analyst at JI Asia. At the time, the $2.6 billion deal was the largest acquisition of a U.S. corporation by a Chinese company.

“If you look at Wanda and what it has done, Wang is now a big movie-theater owner,” said Loeb of Robert W. Baird. “He has the money to think big.”

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