Howard Johnson Chain Up for Sale : British Owner Apparently Displeased With Performance
Howard Johnson Co., the nation’s sixth-largest hotel chain, has been put on the block for an estimated $400 million by its London-based owner, Imperial Group PLC.
During the past month, analysts say, at least four suitors have been bidding for the Quincy, Mass., hotel chain, which owns or operates about 460 hotels and 845 restaurants nationwide. One potential buyer, Washington-based Marriott Corp., bowed out of negotiations for the 60-year-old chain Friday, but a company spokesman would not disclose the reason, nor would a Howard Johnson spokesman name the other interested buyers.
Howard Johnson’s greatest asset is no longer its name but the superb locations of most of its hotels and restaurants, analysts say. But big-name hotel operations that could afford to buy the chain are worried about its reputation, which was tainted in the 1970s by management that spent little on improvements and stubbornly clung to the chain’s dated image.
“Once a hotel loses its reputation as a quality place to stay, it’s hard to get it back,” said Andy Smukler, an investment officer with Provident National Bank of Philadelphia.
Imperial Group owners say they have been discouraged by the lackluster performance of their famous orange-roofed hotels and restaurants. Operating profits fell more than 40% last year to $14.5 million from $24.7 million the year before. Sales rose to $708.9 million from $618.2 million a year earlier.
Nancy Fisher, a Howard Johnson spokeswoman, said Imperial hopes to sell the hotel and restaurant division “soon,” but she would not elaborate.
In the past year, Imperial Group has sold off 80 Howard Johnson restaurants and 10 hotels, Fisher said. Imperial, which posted 1984 revenue of nearly $8 billion, also operates British-based tobacco, beer brewing and snack food divisions.
Not a Bargain
At Imperial Group’s annual meeting in March, Chairman Geoffrey C. Kent told shareholders that the company “underestimated the magnitude of the task before us” when it purchased Howard Johnson for $630 million in 1979. He told shareholders that a possible sale was under study. The company would not comment on analysts’ projections that the chain would sell for about $400 million.
Industry analysts say Imperial Group now recognizes that Howard Johnson was no bargain. “It was a bad investment, and they’re still paying for it,” Smukler said.
One hotel industry observer familiar with the company’s problems called the chain “a giant machine that didn’t go anywhere for years.”
Between 1970 and 1982, Howard Johnson “did not add a single room” to its net total, said Loretta Ivany, managing editor at Hospitality Lodging, an industry trade magazine. The chain now has about 60,000 rooms.
Howard Johnson restaurants, one of the nation’s handful of widely known coffee shop chains, failed to keep up with changing demographics, analysts say. And when fast-food restaurants like McDonald’s began peddling breakfasts for under $2, Howard Johnson did not keep in step with competitors, including Denny’s, that countered with $1.99 breakfasts.
In addition to 620 Howard Johnson restaurants, the company owns 225 Ground Round restaurants. It also holds the franchises on 10 Burger King restaurants.
Imperial Group, which wanted a foothold in the U.S. market, had big plans to breathe new life into Howard Johnson. It spent millions renovating the chain’s hotel rooms but has seen little improvement--and in some areas declines--in its occupancy rates, analysts said. In an attempt to lure executive travelers, it built nine luxury-class Howard Johnson lodgings called Plaza Hotels. But these came late in an industry glutted with first-class rooms and have failed to capture a strong clientele.
Analysts said the discussions with Marriott were probably prompted by G. Michael Hostage, Howard Johnson’s president and chief executive since 1982, who was formally an executive vice president at Marriott.