The move on Orient-Express Hotels by Taj owner the Indian Hotels Company signals that the period of domination by private equity is drawing to a close.
Orient-Express has been long tipped as a takeover candidate but until this summer, the list of potential suitors was almost entirely composed of private equity outfits.
IHCL has agreed to pay $211m for a 10% stake in Orient-Express in a move it said reflected its “deep commitment to the possibility of an association with Orient-Express Hotels”.
But OEH was having none of this interest. A statement issued yesterday said that following a meeting of the board it was confirmed that OEH “has not entered into strategic discussion with IHCL, the Taj hotels group or any of their affiliates”.
And to further emphasise the point it added: “The company has today responded to IHCL stating that it does not wish to pursue the proposals for discussion.”
This leaves the spurned IHCL, which is owned by the giant conglomerate the Tata Group, in something of a quandary. Should it turn hostile or simply walk away?
The IHCL press release announcing the acquisition of the stake on Monday said: “The possible combination of the two brands will create a powerful competitive advantage. The synergies which can be developed will strongly leverage the huge opportunity in the global market as also the exploding Indian hospitality industry.”
The release went on to say: “We are committed to working together in a friendly and supportive manner with Orient-Express Hotels.”
The last part no doubt reflects the reality that the closely held Orient-Express would not easily succumb to a more hardline approach. It seems strange, however, to go public on a matter which could have been easily clarified behind closed doors. Presumably, IHCL hopes that its move will push OEH into play.
The appeal of India is clear. Analysts at Citigroup estimate that Indian hotel companies have enjoyed a 75% annual growth rate in earnings over the last couple of years and are forecasting 38% this year.
Giving OEH shareholders access to a market growing at that pace has clear appeal, even if that growth is slowing as supply catches up. Citigroup believes that the supply-demand mismatch will continue until 2009.
Meanwhile, OEH has announced a restructuring of its senior team, which followed the formal appointment of Paul White as CEO in August. The company said it was in the final stages of finding a CFO.
While IHCL’s move on OEH signals that listed companies are now competing for acquisitions, private equity is far from quitting the game. Walton Street Capital and Starwood Capital Group announced yesterday that they were to partner with Shriram Properties to develop a $1.25bn township in Kolkata, India.
And separately, last week, UK investment firm Dawnay, Day said it was investing $1.2bn to set up a chain of mid-priced hotels in India. The acquisition of four properties has been completed and memorandums of understanding have been signed for a couple of other sites. The first phase is an investment of $200m.
Dawnay Day Hotels India’s managing director Mandeep Lamba said that the model was to build, own and manage the hotels. The first property is to open in Jaipur in the third quarter of next year.