ORIENT-EXPRESS BID

Even as Indian Hotels is working to raise its $1.8-billion bid to entice major shareholders of Orient Express Hotels, early indications from investment bankers reveal that the offer could be raised to $14.52 ashare, and upwards to $16.05.

Indian Hotels had offered $12.63 a share for Orient-Express Hotels (OEH) on October 18.

The Tatas offer was rejected by the OEH Board on November 8, the same day they announced a new CEO, John Scott III, known for his reputed turnaround job at Rosewood Hotels.

Executives close to the deal told Business Line, on the condition of anonymity, “There is a point where the OEH Board will be exposed to legal challenges if it does not deal with an appropriate offer properly. For example, the rejected Indian Hotels offer was at $12.63 a share. Some investment analysts have suggested that an offer between $15 and $18 a share is more in line with the real value of OEH”.

Stating that when Indian Hotels had “first approached OEH some years ago, the OEH Board was scathing in its response, based on the incompatibility of the two companies and implying that an association with Taj would be detrimental to the OEH luxury brands,” the executives added, “It was a matter of great embarrassment to the Taj, and in retrospect OEH.”'

Per room rate

Given the record prices being paid by investors for hotels in the US, the Bermuda-based Orient-Express Hotel group with its “potential positive catalysts, and continued strength in the Italian portfolio” could well command a higher price.

“When you look at the underlying hard assets, its difficult to rationalise. A bid of $15-18 a share implies a per room value on the hotel of $750,000-900,000 against their (Indian Hotels) $600,000 at $12.63 a share,” said the executives.

A higher per room value indicates favourable financing conditions. At the start of 2012, OEH’s owned hotels were valued at $618,000 per key. Last year, they commanded a price per key of $530,000. The OEH owns 3,058 rooms.

“Just two hotels, Hotel Cipriani and Palazzo Vendramin with 95 rooms, command a per key value at $2,500,000,” the executives said.

Arguing that an offer at “the $15-18 level would be much harder for the OEH Board to dismiss as undervaluing the company”, the executives reminded that in 2007, Dubai’s Jumeirah Group had made a $60 a share bid for OEH.

“At a much higher level, it would be easier for the predator to attack the Directors for not acting in the best interests of the company, and breaching their duties in not giving proper consideration to the offer,” the executives added.

amritanair.ghaswalla@thehindu.co.in

(This article was published on December 10, 2012)
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