• Eurazeo move highlights Accor‚Äôs v alue

Private equity firms Colony Capital and Eurazeo are to raise their combined stake in Accor to 30%, having already passed through the 15% threshold.

Both are promising not to seek control but Eurazeo wants to join Colony in having board representation.

In its presentation of its own strategy, Eurazeo heaped praise on Accor, describing the company's management as having successfully implemented "a clear and ambitious strategy".

In particular, Eurazeo singled out the refocusing on the hotel and services segment and the asset right plan to reduce volatility.

It said that Accor had an attractive valuation that does not reflect Accor's quality and upside value potential.

The extent of how under valued Accor is, according to Eurazeo, was made explicit in the investment objective it outlined for the cash it is using to buy the stake. The holding is for five years and is expected to deliver a return in excess of 15% on leverage of 50%.

Accor's board reacted to the news by issuing a statement that called for Eurazeo and Colony to "expressly confirm their support for Accor's expansion strategy" and "demonstrate commitment through a long-term stability pact to guarantee that their increased equity interest will not lead to a de facto takeover" before it will accede to Eurazeo's request for board representation.

The Eurazeo presentation made its support for the board's strategy pretty clear. And the agreement between Eurazeo and Colony includes a two-year lock-up and right of first refusal should either party decide to sell. In addition, the stake increase is capped at 33.3% of capital and voting rights and the agreement is for five years.

There was a 1.1% bump in Accor's share price on the day of the announcements (Monday) although Eurazeo's was up 3.2%, which seems paradoxical.

As well as highlighting the value in Accor, Eurazeo's move is likely to increase pressure on what is the world's most valuable quoted hotel group by enterprise value to divest more property.

With perfect timing, Accor announced on Tuesday that it had sold and leased back the Sofitel The Grand in Amsterdam for Eu60m with the buyer agreeing to finance renovation work of Eu32m.

Accor will run the hotel under a 25-year management contract and retain a 40% share in the owning company. The property will become part of the Sofitel Legend sub brand on completion of the renovation in June 2009, when it will join six other similarly designated Sofitels.

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