• NH up as Hyatt out 

NH Hotel Group described “strong” performance across its estate as it felt the benefits of its ongoing refurbishment programme.

The results were released as Hyatt Hotels Corporation said that the potential route to a takeover of the group had “narrowed to a point of being impractical”.

Hyatt’s comments came after a brief few days of activity, On 26 July Hyatt delivered a letter NH Hotel Group expressing its interest in pursuing a potential acquisition of NH Hotel Group with a separation of its real estate assets from their hotel management platform.

The day after delivery Minor released a statement confirming that it had agreements which would give it a 44% stake in NH, as well as full financing support from its institutions. Minor added that it maintained its long-term vision for NH “which is intended to keep the company as a focused hotel-sector listed company in the Spanish Stock Exchanges, improve overall growth profile of the portfolio based on highly complementary geographies and brands, with limited overlap, and support the management team in executing the current and future strategic plans”.

Hyatt responded that, after reviewing the disclosures, it believed that “the path to a successful tender offer by Hyatt has now narrowed to a point of being impractical”.

The company did confirm that it was willing to talk to NH to discuss “other potential avenues toward unlocking value for NH Hotel Group’s shareholders”. Mark Hoplamazian, president & CEO, said: “We believe that a higher value could be realised by NH Hotel Group’s shareholders if there were an agreed commitment and path to restructure NH Hotel Group’s assets, while leveraging Hyatt’s considerable brand strength and global presence.”

On the company’s second-quarter earnings call, Hoplamazian elaborated: “Our interest in NH was born out of our efforts to significantly expand Hyatt’s presence in Europe, where a bulk of NH’s hotels are located. We felt that the strength of our distribution channels, loyalty programme, and the association with the Hyatt brand would enhance the operating results for NH’s hotels. We also saw an opportunity to unlock value through the separation of NH’s real estate from hotel operations.”

In June CEO Dillip Rajakarier told Hotel Analyst that the company was not looking to take the entirety of NH, commenting: “Ideally we would like to keep it to 51% to 55% because at that level it becomes very accretive to our shareholders. We are trying not to take it to 100% because we feel that we can add value for the remaining investors. We want to maintain public status in Spain as it is good to have two public listings. The European market is mature and trades at lower Ebitda multiples, as opposed to Asia where it is higher and this gives us a balance.

“We will use the public company in Spain to expand into Europe, we want to achieve NH’s five-year plan and it is easier to do this with public company status.”

At NH, the group reported Ebitda of EUR115m, up 12% on the year, which it attributed to revenue growth plus cost control. It added that the combination of growth in the ADR and occupancy drove an increase in revpar of 2.2%, which it attributed to its revenue management strategy in place and the ongoing improvement in the quality of the portfolio, with 13 hotels currently being refurbished.

CEO Ramón Aragonés said: “These results are in line with the solid performance the company has been posting in recent years and they reflect the group’s position of leadership in its main destinations, optimal operational management and efficient cost structure, as well as the positive impact of the significant deleveraging effort.”

The company reiterated its 2018 guidance for Ebitda of EUR260m and for a reduction in net debt leverage to 1.0-1.2 times, compared to 5.6 times in 2015.

At domestic rival Melia Hotels International, the group said that it was looking to Spain’s high season to improve on last year’s full-year figures and also expected to reduce debt, to around two times Ebitda. As at NH, it hailed the impact of stronger positioning in the premium segment.

Meliá said that it would continue to reposition hotels, and had now renovated more than two-thirds of its portfolio, investing more than EUR600m with partners over the last six years in Spain.

Gabriel Escarrer, EVP & CEO, Meliá Hotels International, said: “The first half of 2018 was positive for the travel industry, although the international environment continues to present important challenges.

“It is particularly comforting to note that growth in our Mediterranean resorts has not been affected by the recovery of destinations in North Africa and Turkey, ensuring a sustainable growth model over the coming years.”

The CEO said that the company would continue to pursue international expansion focused on luxury and upscale hotels “in the most dynamic markets”.  Meliá signed 10 hotels during the period, all of them under management contracts.

HA Perspective [by Katherine Doggrell]: Here at Hotel Analyst we understand that Hyatt had been casting loving gazes at NH for some time, which makes it somewhat mystifying that it should wait until Minor was ensconced to show a bit of leg.

Hoplamazian’s comments suggested that Hyatt may be down but was not out, making it clear that it would be prepared to pay more, but with an eye to the assets.

That this is not a done deal was echoed by Bankinter – which also described Minor’s offer as being “conservative” in terms of pricing – and which added that it “cannot be ruled out that a third party” would make a better offer.

Who this third party would be in unclear, but we hear that ownership of the group remains a lifetime ambition of Simon Pedro-Barceló, co-chairman of Grupo Barceló, which made its own undervalued offer for NH at the end of last year. In June Barceló was thought to have appointed Lazard to sell Ávoris, Barceló’s travel subsidiary, with a view to funding a higher bid.

Key to anyone’s success is being friends with Hesperia chair, NH board member and shareholder José Antonio Castro, who eagle-eyed readers will remember from the HNA/NH not-so-pen-pals debacle, when HNA became very exercised around NH Hotel CEO Federico González’s moves to fund investments required on the Hesperia sites in NH’s stable, concerned as it was that the cash would instead go into paying off debts. Readers who go even further back will remember Hesperia’s ambitions to own NH Hotels, which first bubbled up in 2003.

Hyatt is widely rumoured to be chums with Hesperia, with the local press reporting that Minor has sent a letter warning NH to be wary of a possible agreement between the two.

What is known is that Minor has no appetite to hold all of NH. Finding something which works for some, if not all parties may bring this pickle to a close. But given past experience of NH, it may not.

Additional comment [by Andrew Sangster]: There are a couple of questions here which make further corporate action very likely. Firstly, why has Minor not taken out NH in its entirety? The answer appears to be that it is unable to raise the cash to do so. This means that NH is going to remain in play for somebody who does have deep enough pockets.

The second question revolves around Hyatt. It has now clearly signalled it wants to radically expand in Europe. And it now faces the prospect of everybody doubling their asking price as soon as Hyatt walks in the door and the likelihood of somebody trying to buy out Hyatt itself.

Goldman Sachs is looking after the interests of the many Pritzker family shareholders and is a key actor in any outcome. The Wall Street firm has a long association with Hyatt: Goldman funds are thought to have lost a significant sum following its 2007 investment into Hyatt.

A favourite for a move must surely be Hilton. Chris Nassetta, Hilton’s CEO, will no doubt have the appropriate Goldman people in his fast dial as he seeks to catch-up with Marriott for reasons we discuss elsewhere in this issue.

Apart from Hilton, the only other candidate among the global chains able to buy Hyatt is Marriott. Arne Sorenson, Marriott CEO, will be spending as much time talking to Goldmans as Nassetta, but his likely gambit is to push up the price of Hyatt for Nassetta rather than consummate a deal.

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