This document discusses various forms of corporate restructuring in the hotel industry, including mergers, acquisitions, strategic alliances, divestitures, and leveraged buyouts. It provides an overview of key terms related to these strategies and discusses reasons why companies engage in restructuring. It also uses Accor Group Hotels as a case study to illustrate strategies the company has employed, such as consolidation through M&A deals, franchising, management agreements, alliances, global expansion, and brand adaptation.

1. Mergers, Acquisitions and Other Forms of
Corporate Restructuring in Hotel Industry
DR. Tb. Donny Syafardan Antawidjaja, SE., MM.
Working Paper No. 1169

2. Agenda
• Hotel Industry
• Corporate Restructuring
• Sources of Value
• Strategic Acquisitions Involving Common Stock
• Acquisitions and Capital Budgeting
• Closing the Deal
• Accor Group Hotels Case Study
• Other Forms of Corporate Restructuring
• Takeovers, Tender Offers, and Defenses
• Strategic Alliances
• Divestiture
• Ownership Restructuring
• Leveraged Buyouts
• Value-Maximizing and Non-Value-Maximizing Motives

3. US Hotel Industry Snapshot

4. US Hotel Market Size

5. Key Performance Drivers

7. • 2019
• Advent International + Aimbridge Hospitality
In January 2019, private equity firm Advent International announced it would acquire a majority stake in third-party hotel operator Aimbridge Hospitality. The deal closed in February
2019, and Advent International retained its majority ownership in the company following Aimbridge’s October acquisition of Interstate Hotels & Resorts.
• Lindsay Goldberg + Affordable Suites of America
Private investment firm Lindsay Goldberg announced its acquisition of extended-stay owner, operator and franchisor Affordable Suites of America in January 2019, for an
undisclosed price.
• Deutsche Hospitality + Zleep Hotels
Germany’s Deutsche Hospitality in January 2019 acquired a 51% stake in Danish hotel firm Zleep Hotels.
• IHG + Six Senses Hotels Resorts Spas
In February 2019, InterContinental Hotels Group announced it had purchased Six Senses Hotels Resorts Spas from Pegasus Capital Advisors for $300 million.
• Best Western Hotels & Resorts + WorldHotels
In February 2019, Best Western Hotels & Resorts announced its acquisition of global hotel and resort collection WorldHotels.
• Waterton + Waterford Hotel Group
In March 2019, hospitality management company Waterford Hotel Group and real estate investor and operator Waterton announced their merger into a new entity, Waterford LLC.
• Brookfield Asset Management + Leela Palaces & Resorts
Canadian asset management firm and fund Brookfield Asset Management announced its agreement to buy India’s Leela Palaces & Resorts’ management business plus four assets
in March 2018 for Rs3,950 crore ($590 million). The deal closed in October 2019.
• Park Hotels & Resorts + Chesapeake Lodging Trust
Real estate investment trust Park Hotels & Resorts in May announced its agreement to acquire outstanding shares of REIT Chesapeake Lodging Trust for $2.7 billion. The deal
closed in September 2019.
• Ashford Inc. + Remington Holdings
Ashford Inc. announced its plan to acquire the hotel management business of Remington Holdings in June 2019 for $275 million. The deal completed in November 2019.
• Advantage Hotels + Vista and Select Inn
Former Americas Best Value Inn executive Patrick Mullinix announced the formation of Advantage Hotels in June 2019 and that company’s acquisition of the Vista Inn, Vista Inn &
Suites and Select Inn brands from Advantis Hospitality Alliance.
• Eldorado Resorts + Caesars Entertainment
In June 2019, Eldorado Resorts announced its intention to acquire Caesars Entertainment for $8.6 billion. The deal has not yet closed.
• NexPoint Hospitality Trust + Condor Hospitality Trust
Real Estate Investment Trust NexPoint Hospitality Trust agreed in July to purchase outstanding equity interests of REIT Condor Hospitality Trust and to merge its operating
partnership for a total value of $318 million. The deal has not yet closed.
• Vail Resorts + Peak Resorts
In July 2019, Vail Resorts announced its agreement to acquire all of Peak Resorts’ outstanding stock for $11 a share. The deal closed in September 2019.
Aimbridge Hospitality + Interstate Hotels & Resorts
In August 2019, third-party management companies Aimbridge Hospitality and Interstate Hotels & Resorts announced their agreement to merge. The deal closed in October 2019.
• ......etc.

8. Mergers, Acquisitions, and Takeovers:
What are the Differences?
• Merger
 A strategy through which two firms agree to integrate their
operations on a relatively co-equal basis
• Acquisition
 A strategy through which one firm buys a controlling, or
100% interest in another firm with the intent of making the
acquired firm a subsidiary business within its portfolio
• Takeover
 A special type of acquisition when the target firm did not
solicit the acquiring firm’s bid for outright ownership

9. Why Engage in
Corporate Restructuring?
 Sales enhancement and operating
economies
 Improved management
 Information effect
 Wealth transfers
 Tax reasons
 Leverage gains
 Management’s personal agenda

10. +
Accor: company profile

11. +
Accor: Brand Portfolio

12. +
One of the strategies in practice
This strategy mainly contains of the following
components:
 Consolidation of capitals through M&A
 Franchising, management and alliances
 Diversification and integration
 Global, multination strategy and partial adaptation
strategy

13. Sales Enhancement
and Operating Economies
 Sales enhancement can occur because of
market share gain, technological
advancements to the product table, and
filling a gap in the product line.
 Operating economies can be achieved
because of the elimination of duplicate
facilities or operations and personnel.
 Synergy -- Economies realized in a merger
where the performance of the combined firm
exceeds that of its previously separate parts.

14. Sales Enhancement
and Operating Economies
 Horizontal merger: best chance for economies
 Vertical merger: may lead to economies
 Conglomerate merger: few operating
economies
 Divestiture: reverse synergy may occur
Economies of Scale -- The benefits of size
in which the average unit cost falls as
volume increases.

15. + Consolidation of capitals through
M&A
 2012: the Group added 266 hotels (38,085 rooms) to its portfolio through acquisitions
and organic growth.
 Cementing the Group’s leadership in Europe and swiftly developing its presence in
emerging countries;
 Demergers
 Franchising, management and alliances are more preferable

16. Strategic Acquisitions
Involving Common Stock
 When the acquisition is done for common stock, a
“ratio of exchange,” which denotes the relative
weighting of the two companies with regard to
certain key variables, results.
 A financial acquisition occurs when a buyout firm is
motivated to purchase the company (usually to sell
assets, cut costs, and manage the remainder more
efficiently), but keeps it as a stand-alone entity.
Strategic Acquisition -- Occurs when one
company acquires another as part of its overall
business strategy.

17. Hotel portfolio by ownership
structure

18. +
Franchising and
management
 Topline and marginal
growth
 Risk diversification
 Excess to foreign
markets

19. +
Alliances and partnerships
 This type of cooperation is concerned with business segments that offer a potential for
synergies or that target the same customer base known for its mobility: transport,
leisure activities, information and travel-related services.
 Cost cutting;
 Increase of visibility and recognition of their brands;
 Creating value for customers.

21. Accor
Service
Ticket
restaurant
Other
products
Hotels
Apartments
Aparthotels
Adagio
-The Sebel
Complementary
activities
Training
services
and
consulting
Accor
Academy
Davidso
n
Trahaire
Motivan
o UK
Surf
Gold
Restaurants Thalassa
sea & spa
Casinos
Groupe
Lucien
Barrière
SAS.
Diversification
Asset-management program aimed at
reducing its hotel portfolio’s capital
intensity and cash-flow volatility.

22. +
Integration
Integration forward  clients – developing
Integration backwards supplier – doesn’t
exist – only sustainable development
request and partnerships

23. +
Globalization and standardization

24. +
Globalization and standardization
Advertising campaign
Standard Adapted
Services
Standard
Ibis Mercure
Adapted
Sofitel Mei Jue (Grand Mercure)
Development strategy:
Tailoring its brands more closely to local
preferences and enhancing their flexibility

25. + Pure adaptation
MGallery brand

26. +
Conclusion
 Global strategy is vitally important for Accor group
 M&A:-relevant for emerging markets
 Harnessing external growth opportunities, i.e. partnerships or
acquisitions, to consolidate the Group’s leadership in the most attractive
markets with asset-light operations.  Prevailing importance of
operating by franchise agreements;
 Ramping up franchise development in the midscale and economy
segments
 Investing selectively in high-margin projects in prime locations,
especially in the economy segment in Europe,
 Partnerships- as the key component of sustainable growth;
 Tailoring its brands more closely to local preferences and enhancing
their flexibility.

27. What About
Earnings Per Share (EPS)?
 Merger decisions
should not be made
without considering
the long-term
consequences.
 The possibility of
future earnings growth
may outweigh the
immediate dilution of
earnings.
With the
merger
Without the
merger
Time in the Future (years)
ExpectedEPS($)
Initially, EPS is less with the merger.
Eventually, EPS is greater with the merger.
Equal

28. Market Value Impact
 The above formula is the ratio of exchange of
market price.
 If the ratio is less than or nearly equal to 1, the
shareholders of the acquired firm are not likely to
have a monetary incentive to accept the merger
offer from the acquiring firm.
Market price per share
of the acquiring company
Number of shares offered by
the acquiring company for each
share of the acquired company
Market price per share of the acquired company
X

29. Empirical Evidence
on Mergers
 Target firms in a
takeover receive an
average premium of
30%.
 Evidence on buying
firms is mixed. It is
not clear that
acquiring firm
shareholders gain.
Some mergers do
have synergistic
benefits.
Buying
companies
Selling
companies
TIME AROUND ANNOUNCEMENT
(days)
Announcement date
0
-
+
CUMULATIVEAVERAGE
ABNORMALRETURN(%)

30. Developments in Mergers
and Acquisitions
 Idea is to rapidly build a larger and more valuable firm
with the acquisition of small- and medium-sized firms
(economies of scale).
 Provide sellers cash, stock, or cash and stock.
 Owners of small firms likely stay on as managers.
 If privately owned, a way to more rapidly grow towards
going through an initial public offering.
Roll-Up Transactions – The combining of
multiple small companies in the same
industry to create one larger company.

31. Developments in Mergers
and Acquisitions
 IPO funds are used to finance the
acquisitions.
IPO Roll-Up – An IPO of independent
companies in the same industry that
merge into a single company concurrent
with the stock offering.
An Initial Public Offering (IPO) is a
company’s first offering of common stock
to the general public.

32. Acquisitions and
Capital Budgeting
 An acquisition can be treated as a capital budgeting
project. This requires an analysis of the free cash
flows of the prospective acquisition.
 Free cash flows are the cash flows that remain after
we subtract from expected revenues any expected
operating costs and the capital expenditures
necessary to sustain, and hopefully improve, the
cash flows.
 Free cash flows should consider any synergistic
effects but be before any financial charges so that
examination is made of marginal after-tax operating
cash flows and net investment effects.

33. Other Acquisition and
Capital Budgeting Issues
 Noncash payments and assumption
of liabilities
 Estimating cash flows
 Cash-flow approach versus earnings
per share (EPS) approach
 Generally, the EPS approach examines the
acquisition on a short-run basis, while the cash-
flow approach takes a more long-run view.

34. Closing the Deal
 Target is evaluated by the acquirer
 Terms are agreed upon
 Ratified by the respective boards
 Approved by a majority (usually two-thirds) of
shareholders from both firms
 Appropriate filing of paperwork
 Possible consideration by The Antitrust Division
of the Department of Justice.
Consolidation -- The combination of two or more firms
into an entirely new firm. The old firms cease to exist.

35. Taxable or
Tax-Free Transaction
 Taxable -- if payment is made by cash or with a
debt instrument.
 Tax-Free -- if payment made with voting
preferred or common stock and the transaction
has a “business purpose.” (Note: to be a tax-
free transaction a few more technical
requirements must be met that depend on
whether the purchase is for assets or the
common stock of the acquired firm.)
At the time of acquisition, for the selling firm
or its shareholders, the transaction is:

36. Alternative
Accounting Treatments
Pooling of Interests (method) -- A method of
accounting treatment for a merger based on
the net book value of the acquired
company’s assets. The balance sheets of
the two companies are simply combined.
Purchase (method) -- A method of accounting
treatment for a merger based on the market
price paid for the acquired company.

37. Tender Offers
 Allows the acquiring company to bypass
the management of the company it wishes
to acquire.
Tender Offer -- An offer to buy current
shareholders’ stock at a specified price, often
with the objective of gaining control of the
company. The offer is often made by another
company and usually for more than the present
market price.

38. Strategic Alliance
 Strategic alliances usually occur between (1)
suppliers and their customers, (2) competitors in
the same business, (3) non-competitors with
complementary strengths.
 A joint venture is a business jointly owned and
controlled by two or more independent firms. Each
venture partner continues to exist as a separate
firm, and the joint venture represents a new
business enterprise.
Strategic Alliance -- An agreement between two
or more independent firms to cooperate in order
to achieve some specific commercial objective.

39. Divestiture
 Liquidation -- The sale of assets of a firm,
either voluntarily or in bankruptcy.
 Sell-off -- The sale of a division of a
company, known as a partial sell-off, or
the company as a whole, known as a
voluntary liquidation.
Divestiture -- The divestment of a portion
of the enterprise or the firm as a whole.

40. Divestiture
 Spin-off -- A form of divestiture resulting in
a subsidiary or division becoming an
independent company. Ordinarily, shares
in the new company are distributed to the
parent company’s shareholders on a pro
rata basis.
 Equity Carve-out -- The public sale of stock
in a subsidiary in which the parent usually
retains majority control.

41. Empirical Evidence
on Divestitures
 For liquidation of the entire company, shareholders of
the liquidating company realize a +12 to +20% return.
 For partial sell-offs, shareholders selling the company
realize a slight return (+2%). Shareholders buying
also experience a slight gain.
 Shareholders gain around 5% for spin-offs.
 Shareholders receive a modest +2% return for equity
carve-outs.
 Divestiture results are consistent with the
informational effect as shown by the positive market
responses to the divestiture announcements.

42. Ownership Restructuring
 The debt is secured by the assets of the enterprise
involved. Thus, this method is generally used with
capital-intensive businesses.
 A management buyout is an LBO in which the pre-
buyout management ends up with a substantial
equity position.
Leverage Buyout (LBO) -- A primarily
debt financed purchase of all the stock
or assets of a company, subsidiary, or
division by an investor group.

43. Common Characteristics For
Desirable LBO Candidates
 The company has gone through a program of heavy
capital expenditures (i.e., modern plant).
 There are subsidiary assets that can be sold without
adversely impacting the core business, and the
proceeds can be used to service the debt burden.
 Stable and predictable cash flows.
 A proven and established market position.
 Less cyclical product sales.
 Experienced and quality management.
Common characteristics (not all necessary):

44. Acquisitions
Cost new product
development/increased
speed to market
Increased
diversification
Increased
market power
Avoiding excessive
competition
Overcoming
entry barriers
Learning and
developing new
capabilities
Lower risk
compared to
developing new
products
Reasons for
Acquisitions

47. Acquisitions
Problems in
Achieving
Success
Integration
difficulties
Inadequate
evaluation of target
Large or
extraordinary debt
Inability to
achieve synergy
Too much
diversification
Managers overly
focused on
acquisitions
Too large

48. Attributes of
Successful
Acquisitions

49. Restructuring and Outcomes

50. Empirical Findings in Corporate
Control Events
Mode of
payment
• Shareholders gain higher returns in cash
transactions than in stock transactions.
• Signaling model: Equity offers signal that
acquirer’s stock is overvalued.
• Tax hypothesis: Target shareholders require
capital gains tax premium for cash
transactions.
• Preemptive bidding hypothesis: premium for
cash offers required to deter other potential
bidders.
Returns to
other
stakeholders
• Significant wealth gains result for holders of
convertible and nonconvertible bonds.

51. Value-Maximizing Motives for Mergers
and Acquisitions
Geographic (internal and international) expansion
• Greenfield (internal) entry vs. external expansion
• M & A is better alternative for time-critical expansion.
• External expansion provides an easier approach to
international expansion.
• Joint ventures and strategic alliances give alternative
access to foreign markets. Profits are shared.
Synergy, market power, and strategic mergers
• Operational, managerial and financial merger-related
synergies
• Marriott Intl and Starwood hotels merger: “1+1=4”

52. Value-Maximizing Motives for Mergers and
Acquisitions
Operational synergies
• Economies of scale:
• Merger may reduce or eliminate overlapping resources.
• Economies of scope:
• Involve activities that are possible only for certain company size
• The launch of national advertising campaign
• Economies of scale/scope most likely to be realized in horizontal
mergers
• Resource complementarities:
• One company has expertise in R&D, the other in marketing.
• Successful in both horizontal and vertical mergers

53. Value-Maximizing Motives for Mergers
and Acquisitions
Managerial synergies and market power
• Managerial synergies are effective when management teams with
different strengths combine.
• Market power is a benefit often pursued in horizontal mergers.
• Number of competitors in industry declines.
Other strategic reasons for mergers
• Product quality in vertical merger
• Defensive consolidation in a mature or declining industry
• Tax-considerations for the merger

54. Non-Value-Maximizing Motives
Agency problems: management’s (disguised) personal
interests are often drivers of mergers and acquisitions.
Managerialism
theory
• Dennis Mueller (1969)
• Managerial compensation is often tied to
corporation size
Free cash
flow theory
• Michael Jensen (1986)
• Managers invest in projects with negative
NPV to build corporate empires
Hubris
hypothesis
• Richard Roll (1986)
• Acquirer’s management overestimate their
capabilities and overpay for target company
in belief they can run it more efficiently