British Firm to Buy Holiday Inn
Holiday Inn hotels will be sold to Bass PLC for $2.23 billion in a deal that will make the British conglomerate--now best known for its beers--the world’s largest hotel operator, the two companies announced Thursday.
The hotel chain’s parent company, Memphis, Tenn.-based Holiday Corp., said it will form a new company to run its casinos and its other hotel chains--Embassy Suites, Hampton Inn and the proposed Homewood Suites. Holiday Corp. would be dissolved, and its shareholders would receive a $35-per-share cash dividend and stock in the new company.
Under the proposed deal, which must be approved by shareholders of both companies, Bass would get 55 hotels owned by Holiday and take control of another 1,400 hotels that Holiday Inn operates in North America through franchise agreements, management contracts or joint ventures.
Holiday shareholders would receive one-quarter of a share of Bass stock for each Holiday share--a gain to the shareholders of about $125 million. Bass would also assume Holiday’s debt of $2.1 billion.
Name Dates to 1952
The companies have dealt with each other before. Last year, Bass bought the 200 Holiday Inn hotels outside North America and 13 hotels in the United States for $475 million. The British conglomerate already operates hotels in Britain, Belgium, France, Italy, the Netherlands, West Germany and Spain.
The Holiday Inn name was born in 1952 when founders Wallace E. Johnson and Kemmons Wilson opened a hotel in Memphis. The chain grew rapidly and became known as “America’s Innkeeper.” Holiday’s California operations include 80 Holiday Inn hotels, 22 Embassy Suites facilities and 13 Hampton properties. Its chains account for about 10% of all the hotel rooms in the United States.
If the deal is completed, Holiday’s present managers would create and head a firm--for which no name has been announced--that would operate Holiday’s Harrah’s casino chain--four casinos in Nevada and one in Atlantic City, N.J.--94 Embassy Suites hotels and 198 facilities in the Hampton Inn chain.
Holiday’s stock climbed $6 after Thursday’s announcement, closing at $83 on the New York Stock Exchange. The stock had risen $7.875 Wednesday as traders bought heavily in anticipation of the transaction.
“It’s a wonderful deal for Holiday and its shareholders,” said Marvin Roffman, an analyst at the Philadelphia investment firm of Janney Montgomery Scott. “Shareholders will get some cash and they will be left with Embassy and Hampton--the two fastest-growing parts of the business.”
Holiday Chairman Michael Rose said the company’s board opted for a sale of the Holiday Inn division to devote more attention and capital to its other hotel chains.
“It became increasingly clear to us that a separation of Holiday Inns from Holiday Corp.’s other brands was the most effective positioning of the brands in the 1990s and beyond,” Rose said. “The most compelling fact was that Embassy Suites, Hampton Inns and Homewood Suites had reached levels of development that will make them increasingly competitive with Holiday Inns, internally for capital and other resources and externally for customers.”
Bass Started in Brewing
Bass Chairman Ian Prosser issued a statement saying, “The proposed acquisition . . . represents a substantial move forward in the Bass strategy of becoming international in each of its core businesses.”
The Bass company’s roots are in brewing but it also is involved in the production of soft drinks, in retail businesses, travel and hotels. Its best known beers are Carling Black Label and British-style beers and stouts like Worthington, Tennent’s, Bass and Charrington.
The company, which owns 7,000 pubs and 13 breweries, employs a total of 84,000 workers.
The Holiday Inns purchase by Bass would be the latest in a series of major British takeovers of U.S. corporations. One notable example was the acquisition by Grand Metropolitan, a Bass rival, of Pillsbury Co. in 1988 for $5.7 billion. The price tag on the Holiday Inn acquisition is the highest ever for a hotel chain, analysts said.
Analyst Roffman said the expensive business-travel end of the hospitality industry, typified by companies like Embassy, have been doing well. Also, he added, hotels at the lower-cost end--Hampton, for example--are healthy. Embassy has an occupancy rate of 73% and Hampton’s rate stands at 69.5%.
Attractive Occupancy Rate
On the other hand, hotels in the mid-cost range have had a more difficult time recently because of an oversupply of rooms, Roffman said. Holiday Inn, which competes against the Marriott and Ramada hotel chains, has an occupancy rate of 67%--a drop of four points since 1984, he added.
However, the Holiday Inn occupancy rate is four points higher than the average for all hotels in the mid-range cost segment of the market--a statistic that attracted Bass, according to James Murren, an analyst at the New York investment firm of C. J. Lawrence, Morgan Grenfell.
Murren said Bass is expected to strengthen Holiday Inn’s market position.
“Bass has deeper pockets than Holiday Corp.,” he said. “They can renovate units and make Holiday Inn a stronger brand.”
The proposed sale is the latest in a series of Holiday Corp. deals. In May, the company sold two of its Embassy Suites hotels--one of them in Santa Clara--to a Japanese firm called Pacific Partners Limited Partnership. Earlier this month, the company sold an Embassy Suites hotel in Irvine to another offshore investor for $42.6 million. Holiday reportedly has been selling properties to reduce its debt, which reached $2.8 billion in early 1987.
Much of that debt resulted from a one-time dividend payout of $65 per share in 1987. The dividend was a defense against New York billionaire developer Donald Trump, who prompted takeover rumors when he bought a chunk of Holiday stock in 1986. But Trump, who bought less than 5% of Holiday stock, never mounted a takeover bid.
Earnings Slipped
The company’s earnings have slipped slightly because of the effort to retire debt. The company had earnings of $87.5 million on revenue of $1.6 billion in 1988, compared to earnings of $108 million on revenue of $1.6 billion in 1987.
During the first half of its current fiscal year, Holiday had income of $59.3 million on revenue of $775.6 million. The company had income of $81 million on revenue of $806.7 million during the same period a year ago.
A Holiday spokesman said the deal must be approved by the Securities and Exchange Commission and by gaming commissions in New Jersey and Nevada.
