Indian Hotels may sweeten offer for Orient-Express

This story first appeared in DNA Money edition on Saturday, Nov 10, 2012.

Indian Hotels Co Ltd is expected to sweeten its offer to take over Orient-Express Hotels at a 40% premium after the New York Stock Exchange-listed global luxury hotels operator turned it down on Thursday.

The Tata group hospitality flagship and its partner Montezemolo & Partners, which is backed by Ferrari chairman, are mulling their next move after OEH thwarted the bid saying it undervalued the company.

Will it be a new offer with more premium, a hostile takeover or will IHCL drop the bid altogether, move on and focus on optimising its revenues which are under pressure?

Experts feel the Indian company would opt for the first.

Kaushik Vardharajan, managing director, HVS Global Hospitality Services - India, a hospitality consultant, sees OEH as a larger strategic fit and the easiest way for IHCL to expand in the global hospitality market. “If you look at the previous offer, it was significantly higher than the current share price as market conditions were different then. IHCL certainly can hike the offer,” he said.

This is the second time OEH board has rebuffed IHCL’s proposal and an increased offer will give out a message to the shareholders that the Indian company is very serious about its intent, he said.

“OEH is still at a very attractive valuation,” said Siddhartha Khemka, equity research analyst at Centrum Broking.

It is, however, not clear how much more can IHCL offer.

“They still have some room to increase the offer and can hike it by another 20%,” said a top hotelier.

Experts feel IHCL should hike the offer and see how the OEH board reacts.

“I don’t understand on what basis OEH called it an undervalued offer because IHCL offered a significantly higher price than OEH’s market value,” said a top hospitality consultant. “Their stock price has fallen so much from the peak and any increase of late is purely because of IHCL’s offer. IHCL made a great offer especially when the overall economic environment is not very conducive for OEH’s business. It will take OEH at least a couple of years if not more to stabilise.”

In case IHCL hikes the offer, experts said, the OEH board will have tough time explaining shareholders why it should not be lapped up.

“The US and Europe markets are still reeling under pressure and turning around business in a short span will be a tough task. IHCL will get support from OEH shareholders given its intention to reward the shareholders in such stressed market conditions,” said a top hospitality consultant.

Also, more suitors may pop up and jack up the bidding price.

“It is quite possible that private equity players like Blackstone or some other entity sitting on huge investable cash could make a counter offer. If that happens, acquiring OEH will become a very expensive affair for IHCL,” said a top official from an investment advisory.