'Ratan Tata to retire peacefully with Orient-Express buy'

Speculations are rife at the Bombay House, headquarters of Tata Group, that Chairman Ratan Tata wants to retire peacefully by December-end, but not without picking up the coveted luxury Oriental-Express for its group portfolio kitty.

The luxury hospitality group Orient-Express remains one of the few failed buyout attempts by Tata over the last five years. Not a good feeling for Ratan apparently to leave the task unfinished.

So it is not surprising for close Tata observers that Indian Hotels Company Ltd (IHCL), a Tata Group company, which runs a chain of hotels within and outside the country under the Taj brand, has once again revived its plans attempting to acquire the luxury hospitality group Orient-Express, using a metaphor giving one last bid before hanging up the shoes.

Accordingly, IHCL at its board meeting on Thursday last said the directors gave an “in principle” nod to make an offer to acquire 93.1 per cent of Orient-Express Hotels’ Class A common shares for $1.2 billion even as it would entail a management control considering the dual shareholding structure of the NYSE listed firm.

Through its wholly-owned firm Samsara Properties, IHCL currently holds 7,130,764 Class A common shares of Orient-Express Hotels, aggregating to 6.9 per cent, which was acquired by the firm in stages during 2007 and 2009. Thereafter, it started buying shares at the peak of the market as a first step in a possible takeover five years ago.

It now proposes to finance the acquisition and its related costs through a combination of debt and equity. IHCL has made it clear that the total funds required for the transaction are in place. “The company believes that a combination of itself and Orient-Express Hotels Ltd is a strategically compelling opportunity for both companies as also for its respective shareholders,” it added.

However, the Group - may not say so in public - has strategy also in place this time. For one, it has an agreement with Italian firm Montezemolo & Partners, owned by the Montezemolo family who is the manager of Charme II Fund, which will be a minority shareholder in the special purpose vehicle (SPV) set up for the transaction. Tata Group strategists have converted most of their foes into friends this time starting with Paul White, former chief executive of Orient-Express, who had then rebuffed a bid by IHCL owing to lack of strategic fit with an Indian hotel chain, who now owns 83,000 shares or about 0.1 per cent stake in Orient-Express.

IHCL also secured the support of former Orient-Express Chairman James B Sherwood and they will be signing separate pact with Sherwood to buy certain properties in Italy.

Besides, in the past bid attempts, talks were held in private with most shareholders not aware of what was offered by the prospective buyers. This time, Orient Express will really need to have compelling reasons to reject the latest IHCL offer which has been made public to all shareholders.

For starter, IHCL has offered to buy the Class A shares it doesn’t own at $12.63 a piece, 40 per cent premium to the scrip’s last traded price on October 17, a day before the offer was made.

While the Italian fund is likely to bring $100 million to the table, the rest would be through a combination of equity from Indian Hotels and other Tata Group firms besides debt from Bank of America, ICICI Bank and Standard Chartered Bank. The takeover would include assumption of Orient-Express’ debt of around $530 million as of June 30, taking the enterprise value of the deal to $1.8 billion.

Orient-Express management holds Class B shares of the firm which have 10 times the voting power of Class A shares, making it virtually impossible to make a hostile or unsolicited attempt to take over the management of the firm.

So, Tatas in turn will propose to retain the separate identity of Orient-Express and the firm will continue to remain an independently managed company. However, it may just boil down to an imminent hostile takeover attempt although Tatas have dissuaded from terming it (hostile) as such in the past.

The Orient-Express umbrella includes some 46 luxury hotels, dining properties, tourist trains and river cruise properties across two dozen markets.