Accor and InterContinental Hotels Group declined to comment on speculation that they were planning a merger.
Credit Suisse analyst Leo Carrington told us that the main rationale behind the move would be “collapsing central costs”.
Carrington described the move as being complementary in some regions, with IHG strong in North America and China, with Accor more present in Europe and the Rest of the World. Looking at the brands, Carrington saw Ibis and Holiday Inn as complementary, but noted that there was more overlap in the groups’ upscale and luxury flags.
A combined company would have over 1.6 million rooms, ahead of Marriott International, which had close to 1.4 million rooms at the end of last year.
A report in Le Figaro suggested that Accor CEO Sébastien Bazin had created a team to look at a merger in early June, with the support of the company’s board, alongside CFO Jean-Jacques Morin, and the investment banks Centerview and Rothschild.
Shares in IHG were up by 1% at the time of writing, giving the group a market capitalisation of £7.35bn. Accor was also up 1%, giving a market capitalisation of €6.11bn.
Commenting on the potential for consolidation in the hotel sector in the coming months, IHG CEO Keith Barr told analysts earlier this month: “It’s going to happen, but not straight away, there is enough government support keeping companies afloat. It’s important to be positioned to take advantages of opportunities, but in the short term to be focused on operations. We need to be thoughtful and prudent as we manage the balance sheet.”
IHG said at its half-year results that it had maintained “substantial” liquidity of around $2bn and said that it was confident of operating through the recovery. Looking into 2021, the company said that, along with the rest of the industry, it had “limited visibility”.
Accor reported that combined with two undrawn renewable credit facilities, totalling of €1.76bn to the existing cash and cash equivalent, it had more than €4.0bn in liquidity.
Accor had already launched a €60m G&A annual cost savings programme which was 60% achieved by the end of June 2020. The company said that it had then undertaken a review to shift from its new asset-light business model to an asset-light company.
Addressing the issue of costs, Jonathan Langston, chairman, Hotstats, told us: “Consolidation seems an inevitable outcome of a crisis which impacted disproportionately the hospitality sector. Uncertainty about future revenues prevail, but one thing that we know for sure is the costs of operating hotels are increasing. We’re seeing operators put those expenses under the microscope and hatch creative, cost-mitigating solutions. Of course, at the macro level, consolidation is one way to secure profit enhancements to preserve hotel owner and shareholder value.”
At both companies’ results, emphasis was placed on their dominance in the economy and budget sectors, expected to be the first segments to recover as travel restrictions eased. As Carrington noted, the Ibis and Holiday Inn families were expected to be complementary.
At Accor, the Ibis brand network had 1,150 hotels and 200 in development as of August last year, across the three variants; Ibis, Ibis Budget and Ibis Styles. The Americas region accounted for 17% of the brand’s development and pipeline, with a network of 174 hotels and 36 in the pipeline. Europe excluding France accounted for 32%, with France at 23% and Asia Pacific 23% and Africa and the Middle East 5%. 46% were managed and 54% franchised.
At IHG, the Holiday Inn brand family, comprised of Holiday Inn and Holiday Inn Express, had, as a 30 June, a total of 5,166 hotels - 1,246 under Holiday Inn, with 277 in development and 2,888 at Holiday Inn Express, with 755 in the pipeline. In the Americas, there were 746 Holiday Inn hotels open and 96 in the pipeline, with 2,379 hotels open under Holiday Inn Express and 441 in the pipeline. For the EMEAA region, Holiday Inn had 393 hotels with a pipeline of 114, while Holiday Inn Express had 315 open and 105 to come. In Greater China, Holiday Inn had an estate of 107 open hotels and 67 in the pipeline, with 194 Holiday Inn Express’s open and 209 in the pipeline.
Looking at the estate as a whole, including both open and pending hotels, the geographic split was: 72% Americas, 17% EMEAA and 11% Greater China.
Earlier this month S&P Global downgraded Accor, leaving it with a negative outlook, citing weaker earnings. The company confirmed there would be a “coupon step-up” of 125 basis points on a number of its bonds with maturities spanning the February 2022 to February 2027 period.
This would mean Accor's interest bill increasing by around €30m, most of it in 2022.
S&P cut Accor’s credit rating to ‘BB+’ from ‘BBB-‘ commenting: “We now anticipate weaker earnings and debt metrics in 2020 and 2021,” citing the effects of the COVID-19 pandemic on travel and the economy. The company retained a BBB- rating with Fitch.
Insight: And to think the received wisdom in the sector has been that we won’t see any real ructions in the industry until the end of this year at least. Hurrah for the motivation of a truly sticky situation, a situation in which suddenly having economy and budget hotels has proved bizarrely glamorous and something to show off about, when last year it was all about luxury and loyalty.
Accor is already involved in the UK’s biggest budget drama as it courts the Travelodge owners and bigger can only be better in their eyes - unless it means more cannibalisation. This hack observed any number of Holiday Inn owners listening in on the Ago calls, with, one suspects, a hankering to jump ship. If the two groups merge, this may prove somewhat embarrassing at the Christmas party.
Will they succeed? Joseph Fischer, owner, Vision Hospitality & Travel, told us: “On a corporate level a merger is possible. Just a reminder: most big mergers fail on egos and people.”
We wouldn’t like to comment on the egos of Messrs Barr and Bazin but it’s fair to say that the latter has come under attack from a stock market which can’t work out how to value Accor and a suspicion that sometimes there’s just too much thinking out of the box. At IHG there is also an itch to break the group up and Barr is limited in how much cash he can spend to drive the company forwards. If this doesn’t come off then for Bazin at least it will be back to the paddle board.