Indian Hotels is deliberating hiking its $1.8-billion bid for Orient Express Hotels, to ensure a better price per key (price per room) for the entire portfolio.

Investment bankers, who spoke to Business Line on the condition of anonymity, said the Indian Hotels $12.63 a share bid was not off the mark, and alluded to reports that indicated “a blended price per key for the entire portfolio, by applying a prudent asset value to each property.”

One aggregate “price per key estimate was placed at $618,000. After extracting corporate costs, real estate loses etc., we arrive at an equity value of $1.193 billion, or $12 a share,” the experts said.

Indian Hotels offered $12.63 a share for Orient Express Hotels (OEH) on October 18. The very next day, JP Morgan downgraded OEH with a price target of $12. The OEH stock is currently trading at $12.19.

In its reply, OEH said Indian Hotels’ $12.63 a share bid “significantly undervalues” the company and its unique assets, and is not in the best interests of shareholders and rejected the offer outright.

Officials added, “The value drivers are the owned hotels. The European assets of OEH command a high per key value.”

High price

After Cipriani, OEH’s Hotel Splendido and Splendido Mare with 80 rooms, have an assumed per key value of $2,500,000. The Villa San Michele with 46 rooms and the Hotel Caruso Belvedere with 48 rooms have the same per key value, as does the Hotel Caruso Belvedere with 48 rooms.

Indian Hotels has teamed up with a fund controlled by Italy’s Montezemolo and Partners, an Italian company directly owned by the Montezemolo family, the manager of Charme II Fund. The latter, in turn, is a minority shareholder in the SPV (Special Purpose Vehicle) set up for the transaction.

Though Indian Hotels proposes to finance the acquisition through a combination of debt and equity, the Indian company has said total funds required to consummate the transaction are in place.

Theoretically, bankers said, though Indian Hotels might be prepared to pay a higher price for OEH, since the latter holds a special value, whether it would do so is another matter altogether. They point out that Indian Hotels’ history in overseas investments has not exactly been exemplary.

“The stock market showed concern about the impact on Indian Hotel’s balance sheet at $12.63 a share. It is a transaction that was to be heavily debt funded. There are also chances that another Tata company might take the assets, and Indian Hotels would retain management control, in an asset light strategy,” the executives added.

amritanair.ghaswalla@thehindu.co.in

(This article was published on December 10, 2012)
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