These two companies are likely to consider a merger to become the world’s largest operator in the world


TOPLINE

With the global tourism sector hit hard by the coronavirus pandemic, French hotel company Accor is considering a possible merger with British rival InterContinental Hotels – a move that would make it the largest hotel group in the world, daily Le Figaro reported.

KEY FACTS

Shares of both companies circulated the news, with Accor up more than 3% and InterContinental up almost 2%.

A merger would mean that Marriott would no longer be the largest hotel company in the world – InterContinental and Accor would have 1.6 million rooms, reports Reuters, compared to Marriott’s 1.3 million.

Based on current market prices, a combined company would have a market value of about $ 17 billion, and would merge Accor’s 5,000 properties – including Raffles, Sofitel and Ibis – with the nearly 6,000 InterContinental hotels, which include brands such as Holiday Inn and Crowne. Plaza.

Although Accor has not taken a formal approach, its management board is apparently in favor of a deal, Le Figaro reported, without naming sources.

But Accor chairman and CEO Sebastien Bazin – who set up an internal task force in June to investigate a possible merger – is making cautious progress and Accor is yet to make contact with InterContinental, the French daily said.

An Accor spokesman told Reuters the company had not commented on market rumors, while InterContinental had not yet commented on the news.

Key background

Shares of both companies were hit hard as the coronavirus pandemic devastated the global travel industry, causing many hotel companies to temporarily suspend bookings, cut jobs and tackle their finances. Accor’s share has grown more than 40% in overseas trading so far this year, while InterContinental, which trades on the New York Stock Exchange, has fallen by 23%. What’s more, Accor was recently burnt down to junk status by S&P Global earlier this week, which means the company now has higher interest payments.

What to see

A merger could make geographic sense for the two companies, as Accor’s family of markets is more skewed toward Europe, but InterContinental has larger operations in the US and is a growing presence in China, according to Reuters. It would also offer substantial cost savings, such as on head office expenses, reservation systems and loyalty programs, Le Figaro’s report said.

Chief critic

A combination of the two companies would still be an enormously complex deal based on the sheer size of their operations, Bernstein analysts said in a recent note. What’s more, a deal would have made more sense when shares of InterContinental collided earlier this year, but now less earnings have given the stock rebound, analysts wrote. Accor would be better able to concentrate on the ‘almost free growth’ that comes from striking deals with hotel owners to renovate existing properties, they said. “This will not help investors’ perception that Accor Management will not stick to its organic growth / simplification strategy and will continue to look for great deals.”

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