LEISURE: Jin Jiang Eyes Bigger Influence in Uneasy Accor Alliance

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Bottom line: Jin Jiang is likely to ultimately drop its pursuit of Accor and sell its entire stake in the French hotelier, which is showing signs of growing uneasiness in an unwanted courtship by its Chinese suitor.

Jin Jiang contemplates upping its Accor stake

Leading Chinese hotelier Jin Jiang (HKEx: 2006; Shanghai: 600754) and worldwide peer Accor (Paris: AC) are becoming increasingly uncomfortable bed mates, with word that the former may want to boost its stake in the latter. This particular alliance was engineered by the state-run Jin Jiang, which early this year acquired 5.5 percent of Accor by purchasing shares of the French hotel operator in the open market. Jin Jiang later upped that stake to nearly 12 percent, though again it’s not clear if it bought the shares with the approval of Accor, operator of the upscale Novotel and Sofitel brands.

The history of this relationship, combined with overtones in the latest reports, all hint at an uneasy courtship that is taking place between these 2 companies. Jin Jiang is clearly interested in Accor’s global background and expertise, as it embarks on a recent buying spree in an attempt to build China’s first worldwide hotel company. But Accor seems far less interested in being pursued by Jin Jiang, probably because its suitor is an unfamiliar company with very little experience running a global brand.

Against that backdrop, let’s take a closer look at the latest headlines that have Bloomberg reporting that Jin Jiang is considering boosting its stake of Accor to as much as 20 percent from the current 12 percent. (English article) The additional 8 percent stake would be worth about 735 million euros ($840 million) based on the company’s latest share price. Jin Jiang has already paid about $1 billion for its Accor investments to date.

Accor shares have rallied more than 10 percent over the last week, including a 5.6 percent in the latest trading session, as perhaps investor bet that Jin Jiang could ultimately make a bid to buy the French company outright. Jin Jiang’s own Hong Kong-listed shares have rallied quite a bit over the last month, and are up around 20 percent, again perhaps as investors applaud the company’s global aspirations.

Such a tie-up certainly sounds good in theory. Jin Jiang is one of China’s largest hotel companies by market value, worth about $2.4 billion based on its Hong Kong share price. What’s more, the company has access to lots of credit via its close connections to the government of Shanghai, and is in good position to grow in its home China market. Accor is also one of many major western hotel players that have been quite active in China over the last decade, in a bid to tap the nation’s booming travel market.

But while closer ties look good in theory, the reality is far different. Accor has an existing relationship with China Lodging Group (Nasdaq: HTHT), China’s largest privately owned hotel company, through a major strategic tie-up announced in late 2014. Thus this new courtship by Jin Jiang appears to pose a direct conflict to that previous alliance, since China Lodging has a similar position and market value to Jin Jiang.

Seeking Greater Influence

The Bloomberg report says Jin Jiang wants to boost its stake to gain more influence in Accor’s management, and that Accor has hired its own advisers to help it decide how to proceed. Again, all of that hints of the discomfort that Accor feels from Jin Jiang’s advances, and suggests that Accor would probably prefer that Jin Jiang simply abandoned the courtship.

Of course I would be remiss if I didn’t mention another similar unwanted courtship in the global lodge, which saw Chinese insurance giant Anbang make a surprise bid for US hotel giant Starwood (NYSE: HOT) last month. Anbang ultimately scrapped that bid after Starwood strongly suggested its preference for a previously announced merger with larger US rival Marriott (NYSE: MAR). (previous post)

So the big question now becomes what will happen next with this budding relationship between Jin Jiang and Accor, and whether it’s destined to end in a similar outcome to the Anbang-Starwood story. In this case Jin Jiang’s interest in Accor seems at least partly driven by its acquisition last year of a major European hotel portfolio when it purchased Louvre Hotels Group for 1.2 billion euros.

Having made that big purchase, Jin Jiang probably wants to tap Accor’s expertise to help it improve the performance of the hotels from the Louvre portfolio. Perhaps Accor might like that opportunity, but at the same time it’s quite wary of the way Jin Jiang is attempting to force an equity marriage. At the end of the day, I really don’t see this partnership working, and suspect that continued resistance could prompt Jin Jiang to ultimately follow a similar path to Anbang and dump its Accor shares.

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