• Burgio falls victim to needs of shareholders

Gabriele Burgio’s tenure at NH Hoteles came to a sudden end last week, with the news that he was to leave the group at the start of March, to be replaced by Mariano Pérez Claver.

His exit puts NH firmly into play with the possibility of a break-up if no bidder emerges for the whole group.

Both NH and Burgio have been quiet since the filing with Spain’s National Securities Market, which said that his decision was made after having achieved the objectives set out in the business plan agreed in 2009 to address the impact of the downturn. However, rumours persist that Burgio was ousted by 10% shareholder Caja Madrid, rumours made stronger by the fact that his replacement is currently president of SOS Food Corporation, of which Caja Madrid is the biggest shareholder.

It is thought that Caja Madrid, which is one of Spain’s oldest savings groups, had been acting with Group Hesperia, with the pair collectively representing shareholder who own around 45% of the group. Hesperia has a rocky history with NH as far back as 2003, 10 years after Burgio joined, when the company was eager to merge with NH. NH rejected the unsolicited bid for a 26.1% stake as too low, both in price and in terms of the stake size.

The company also said that the deal would raise its debt and pointed to future recovery as well as future cost savings, which it expected to buoy its finances. The board at that time had faith in Burgio’s long-term strategy, which, over the course of his leadership, has taken it from under 100 sites, all in Spain, to over 400 hotels across 24 countries.

Hesperia continued to nag at the group, building up its stake gradually, until 2009, when the two merged their hotel management businesses, building the NH estate without the need for any additional investment. Hesperia continued to own or lease its 51 properties and, after a six-year wait, also claimed a seat on the board.

Burgio’s exit on Friday had the support of the Spanish stock exchange, with shares in NH rising by 7% after the news, with analysts possibly looking at the turnaround at SOS Food since Caja Madrid rescued it.

NH is not in such dire straits, with recovery gaining traction in its domestic market and, in the third quarter, seeing rate growth for the first time in seven quarters. Burgio himself thought that the group had reached a point at which it could start to build on its recovery, after instigating the 2009 plan, forecasting "moderate" revpar growth. The group was also looking to expansion, focusing on Germany, France and Latin America.

NH has also been pursuing an asset rationalisation strategy, cancelling a series of low-performing contracts. However, the group’s asset disposal plans, which saw it intend to sell Eu300m of non-strategic assets last year, was set to spill over into the first months of this year.

By the end of the third quarter, the group had raised Eu183m through the sale of three hotels in Mexico and St Ermin’s Hotel in London. A further Eu60m of sales had been committed at that time, but, despite the wider defence of the weak transactions market, this delay may have been the straw that broke the donkey’s back.

Caja Madrid is keen to raise cash, and as fast as possible, to aid its position in the country’s ailing banking sector, under pressure from the government. The bank leads a group of seven savings banks under the name Banco Financiero y de Ahorros, which is planning to list to raise capital once Spain’s new regulations are clear. These considerations mean that the group is unlikely to view NH as a long term hold.

Hesperia has not been the only company to view NH as a potential takeover target over the years, with the then Hilton International thought to have eyed the company, in addition to fellow Spanish group Sol Melia. For Sol Melia, recent strategy has seen it sell its Tryp brand, with the company intending to expand outside the volatile Spanish market and through low capital intensive means.

 

HA Perspective: Burgio has been ousted more for the needs of some of the companies that part own NH than for the benefit of NH’s wider shareholder base. Caja Madrid in particular desperately needs cash and the sale or even break-up of NH will deliver this.

The new CEO has a track record of stripping out companies. At SOS Perez Claver sold-off the rice business at the end of last year, focusing on its core olive oil operation. The cash raised was distributed to shareholders and debt was paid down.

Maybe this is the answer for NH which has struggled with its debt burden and exposure to high rent leases. But it would be a sad end to what is currently Spain’s only truly European hotelier.

It is also a worrying precedent for other indebted hotel groups. Given the problems at Lloyds Banking Group, the executives at newly minted Mint (formerly City Inn) and the Rocco Forte Collection will not be sleeping easy.

Share →