Minor International’s takeover of NH Hotel Group is thought to be facing a challenge after 8.1% shareholder Hesperia was reported to have appointed JP Morgan to look at options for its stake.
Hesperia had previously been linked to Hyatt Hotels Corporation, which announced last month that a takeover had become “impractical”.
It is thought that JP Morgan is considering an array of options, including putting together a competing bid, forming a partnership with Minor or selling the stake.
Hesperia has previously complained that Minor’s EUR6.30 per share offer was too low, a view shared by Hyatt, which described it as underestimating NH’s intrinsic value.
At the time of writing, Minor’s holding in NH was 45.46%. Hesperia has said that, should Minor’s holding go over 50.01% then it would terminate the management contract it has with NH for 28 of its hotels.
Hesperia first became involved with NH in 2003, when it had aspirations towards ownership. Previously shareholder HNA Group publicly cautioned over the relationship between then-NH CEO Federico González and NH board member and shareholder José Antonio Castro, Hesperia’s chairman, 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.
At the end of 2016 HNA said that it was “deeply concerned” about the payment, which was to go towards renovating the hotels “not to service Mr. Castro’s substantial outstanding debt”, adding that it wanted guarantees that Castro “did not receive an accelerated lump-sum payment at the expense of NH Hotel’s non-Hesperia shareholders through a less stringent early termination provision upon a change of control (such as a transaction with HNA)” and that it “restricted Mr. Castro’s ability to receive payments from NH Hotel and then terminate or default on the contract in order to ‘sell’ it to a new third-party, thereby profiting the same management contract twice”.
The contract was then signed in December 2016, with the guarantees in place.
NH told Spain’s financial regulator that, if Hesperia broke the contract it was entitled to reclaim the proportion of money paid so far back. Of the EUR31m agreed, EUR11m was paid initially, with EUR10m due this year and the remainder pending.
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 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.”
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.”
HA Perspective [by Katherine Doggrell]: It ain’t over until it’s over at NH and really, will it ever be over? Surely the time for banging heads together is now nigh. In the meantime, Minor is heading close to its target and, we understand, has no appetite to go higher. What happens next may well depend on whose head Hesperia manages to turn with its antics and whether the remaining shareholders think that they can get more cash.
With Castro still awaiting renovation payments one cannot imagine that he is prepared to cut his hotels’ noses off to spite their to-be-upgraded faces and must have someone in mind to make the move worth his while. Hyatt did not expressly quit the running, choosing instead to say that the potential route to a takeover of the group had “narrowed to a point of being impractical”. Should that route open up again, they may yet get involved.
This hack remains tickled by the idea of a move by Grupo Barceló, where Simón Pedro Barceló is known to carry a torch for NH, which was not extinguished when his offer for NH was knocked back. In June Barceló was thought to have appointed Lazard to sell Ávoris, Barceló’s travel subsidiary, with a view to funding a higher bid.
The key to the conundrum is Castro.