• Pelisson splits with Accor over ‘divergences’

Gilles Pélisson's quitting of Accor last week over "strategic divergences" came as a shock to the market, at a time when fortunes at the newly-restructured company were on the rise.

Although the exact details weren't immediately clear, rumours abounded that shareholders Colony Capital and Eurazeo, who collectively own just shy of 29% of the group, were the architects of the decision to replace Pélisson with Denis Hennequin, CEO of McDonald's in Europe.

Accor's board said the group had moved into "a new phase in its development, during which the definition of priorities and their execution will be key factors in its success".

Pélisson's appointment in 2006 was itself the subject of controversy, given that his uncle Gerard Pélisson, was the company's co-founder (Gerard resigned from the board when his nephew was appointed). However, since then he has been largely welcomed by the group's investors for driving the move to demerge the hotels and prepaid-services businesses.

Indeed the decision to split was greeted by the two private equity groups, who released a statement saying: "Eurazeo and Colony Capital reaffirm their willingness to provide lasting support for the two companies that will result from this separation." However, it was opposed by unions working within the company and, on the board, the FSI – the French sovereign wealth fund – which was the only member to vote against it, fearing that an weak economic climate could see the two companies suffer.

At the time of the demerger Accor said it aimed to speed up the low capital-intensive asset-right strategy it has had underway since 2005, with the goal of operating more than 70% of the hotel base under management contracts, franchise agreements or variable-rent leases by 2013.

To reach this objective, 450 of the 1,600 hotels owned or operated under fixed-rent leases at the end of this year will change ownership structure between 2010 and 2013. This disposal is expected to have a cash impact of Eu1.6bn and will reduce adjusted net debt by Eu2bn.

In September the group announced plans to increase the speed and volume of the asset-disposal programme this year, cutting net debt by up to Eu650m compared to the previous target of Eu450m.

Pélisson said at the time: "We had set a very ambitious target of Eu2bn by 2013, but given the recent major transaction and the buoyant market for transactions we are now raising the target for 2010."

The comments came in the same week that the group announced the sale of 48 hotels in France, Belgium and Germany for Eu367m to a Credit Agricole subsidiary, Predica, and Fonciere des Regions.

The group also planned a sustained expansion plan, with the objective of opening 35,000 to 40,000 new rooms a year "at cruising speed", while reducing annual expenditure to Eu250m through asset-light expansion, primarily in the economy segment in Europe and in fast-growing countries.

Despite this, analysts speaking to Hotel Analyst felt that the most likely reason for Pélisson's leaving was the right strategy, but at the wrong speed, as investors look to accelerate the group's expansion, despite the global economy's slow pace of recovery.

Hennequin has extensive franchising experience, as Accor's board said in their welcoming statement, drawing attention to his having "played a key role in the chain's development in Europe by implementing a strategy based on the development of franchising and a policy of profitable, dynamic and ambitious growth".

Natixis analysts said in a note: "The message the board is sending is very clear: Dennis Hennequin is a franchise and brands specialist…..and his focus will be to accelerate the group's optimisation."

Changes at the top are nothing new to follows of Colony Capital and Eurazeo's tenure at Accor. Hennequin himself joined the board in February 2009, after the resignation of six board members, including chairman Serge Weinberg, over the promotion of Pélisson to executive chairman.

The protestors argued that combining the roles of chairman and CEO would risk corporate governance problems given the size of the Colony and Eurazeo stake, with an individual less able to withstand pressure from the pair.

In a statement, Weinberg did not name Colony and Eurazeo, but criticised "shareholders with a determinant influence on the company's future" for having "elevated debt levels," fearing that they may push decisions that were not in the interests of the group's other investors.

Prior to the 2009 shake-up, Colony has been making its presence felt since 2005, when it make its Eu1bn investment in the group, in return for two board room places. Six months after the move, CEO Jean-Marc Espalioux quit, with comment at the time pointing the finger at Colony.

Colony was joined in January 2008 by Eurazeo, which built a 10.2% stake and also acquired two seats at the board room table, with the two acting together since then.

In the demerger, Accor took on Eu1.2bn of the group's total Eu1.6bn debt and is currently trying to cut this, the most recent attempt being through the sale of its 49% stake in casino operator Groupe Lucien Barriere, when the group was due to list. The IPO was withdrawn due to lack of investor interest, which in the short term leaves the group more reliant on selling assets, at a time when investors' taste for assets leans more towards trophy and distress.

The group's expansion plans are also under pressure from a lack of development finance available to the market. The company is prepared to invest for key developments, but while it is cutting debt and ownership, this cannot be a widespread strategy.

 

HA Perspective: The departure of Pelisson has been abrupt and surprising. It is not in the nature of Accor to act with such speed – slow and deliberate has been its record to date.

The surprising element of Pelisson's departure is that he had put in place the strategy required of him. Possibly he was not quick enough or ruthless enough for key shareholders. More and faster is clearly what is expected of Hennequin.

Most likely, Pelisson's exit was prompted by his refusal to follow through with the logic of the asset light strategy, of expanding only in areas where returns were strong and shedding where they are weak. Pelisson's vision was of a much more rounded hotel company rather than one focused on simply the areas of highest return.

If there is to be a switch away from Pelisson's holistic view, it is hard to see a long-term future for Sofitel under the new leadership. While Pelisson has made good progress in tidying it up, it remains distinctly second division compared to luxury rivals. A sale would surely beckon in such a strategy shift.

More in the balance will be the fate of Motel 6. Will Hennequin risk his reputation by trying to turn around this ailing US-based brand? Or will he switch to focus entirely on Europe and emerging markets where the returns are clearly better? The safest option is to sell.

The biggest challenge for Hennequin is delivering on expectations for franchising and management contracts. To an extent, the easy part has been done in that buyers have been found for much of the real estate and then tied into deals.

The much harder slog will be in growing the business by persuading other owners to sign-up with Accor. Much has been made of Hennequin's background at McDonald's. He will need to call on every bit of his experience to deliver or further boardroom bust-ups beckon.

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