Print | Share | Reprint

Accor sells North American motels chains to Blackstone

by Paul Whitfield | Published May 22, 2012 at 8:43 AM

French hotel operator Accor SA said Tuesday, May 22, that it had agreed to sell North American budget chains, Motel 6 and Studio 6, to Blackstone Group LP, for $1.9 billion, raising cash to cut debt and freeing it from underperforming operations in need of investment.

Accor said it will book a €600 million ($767 million) loss on the deal, related to the early buyout of fixed-lease hotels in the two groups. On the upside, the sale will reduce the group's net debt by about €330 million and its fixed-lease commitments by about €525 million.

"The business was never right for Accor," said Natixis Global Asset Management SA's hotels and tourism analyst André Juillard. "There were no synergies and the business model was wrong. Restructuring the business would have cost about as much as the loss they are assuming and they were never going to win the battle for market share in the U.S."

Shares in Accor gained on news of the deal to trade Tuesday at €25.63, up €1.03, or 4.2%, on their previous close.

The sale is the first big strategic deal by Accor Chairman and CEO Denis Hennequin since he took control of the Paris-headquartered hotel group in January 2011. Hennequin, a former president of McDonald's Corp.'s European unit, said in September that he was open to offers for Motel 6, which Accor bought in July 1990 for $1.3 billion from PE owners led by Kohlberg Kravis Roberts & Co. LP.

The sale completes Accor's exit from the North American budget hotel market, five years after it sold its Red Roof Inns Inc. business to Citigroup Inc.'s Global Special Situations Group and Westbridge Hospitality Fund LP for $1.31 billion. Accor said it will retain a presence in the U.S. through its more upscale Sofitel and Novotel brands.

"This deal will provide Accor with additional resources to address the tremendous growth potential in the Asia Pacific region, in Latin America and in Europe," Hennequin said in a statement.

Offloading Motel 6 will boost Accor's Ebit margin to 9.2% from 8.7% and allow it to reduce its real estate assets in line with its wider target of cutting hotel ownership in favor of leasing deals. Accor had €1.72 billion of gross debt at the end of 2011 and posted Ebit of €530 million from revenue of €6.1 billion in 2011.

Blackstone Real Estate Partners VII, a property fund managed by Blackstone, will take control of the two chains' 1,102 hotels and 107,000 rooms across the U.S. and Canada. The chains booked Ebit of €15 million in 2011 from sales of €532 million, equating to an Ebit margin of 2.8%.

Based on those figures Blackstone is paying about 3.6 times sales and a huge 126 times Ebit. It is also taking on an asset that needs significant new investment. Accor spent €95 million overhauling some of Motel 6's operations in 2011.

"Motel 6 will be operated on a stand-alone basis, similar to other lodging investments we have made on behalf of our investors," Blackstone's global head of real estate Jonathan Gray said in a statement. "We plan to invest significant capital in the company's properties and to accelerate expansion of the franchise base."

The disposal of Motel 6 could push Accor back into the market for new acquisitions. "The sale means they lose 20% of their portfolio in terms of room numbers and the will want to address that," said Natixis's Juillard.

The transaction is expected to complete in October.

Accor took financial advice from Rothschild, Citigroup and Société Générale SA. It tapped Proskauer Rose LLP for legal advice.

Share:

Tags: Accor SA | Blackstone Group LP | M&A | PE

Private Equity

Accor sells North American motels chains to Blackstone

Free preview

Meet the journalists

Paul Whitfield

Correspondent: Paris

Movers & Shakers

Video

The Deal interview: Bob Landis

Sectors