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Shareholders should normally run a mile when the creation of a “national champion” is touted as justification for a merger. But in the case of Barceló and NH Hoteles, they should be prepared to overrule their instincts.
On Monday, NH confirmed that privately owned Grupo Barceló had proposed a merger of the two companies, a combination that would vault both above rival Melia as the country’s largest homegrown hotel operator. Barcelo says its proposal, which would result in it owning 60 per cent of the combined entity, values NH shares at €7.08 each, a premium of 27 per cent to the undisturbed price. But an implied enterprise value of around 11 times forecast earnings (before interest, tax, depreciation and amortisation) is a lower multiple than Accor’s recent acquisition of Mantra.
In contrast to many hotel groups, NH owns or leases most of its properties, which are primarily located in European cities. It is a recovery story, having nearly collapsed under the weight of its debts in 2013. Barceló’s recent record has been more polished. Revenues and ebitda have doubled in the past four years. Its hotels are skewed towards resorts.
The combined group would boast 198 hotels in Spain, giving it more pricing power in a buoyant market. Despite the terrorist attack on Barcelona, UBS forecasts that this summer will be one of the best for Spain’s hospitality industry, with average occupancy of 80 per cent. The addition of Barcelo would also give the merged group a more material presence in the Americas, and Berenberg estimates annual cost savings of up to €80m.
Chinese conglomerate HNA Group owns 29 per cent of NH. After losing its board representation and under political pressure at home, it may welcome an exit. Or it may fancy engineering a combination of NH with Stockholm-listed Rezidor, which it controls. Whether the mooted Iberian titan ever gets to its feet may well be decided in Haikou rather than Madrid.
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