TRAVEL: HNA Checks Into Red Lion Hotels, Buyout Coming?
Bottom line: HNA’s purchase of a stake in a small US hotel chain could presage a larger buyout bid for the company in partnership with a Chinese operator looking to expand abroad.
We’ll take a break today from all the recent mega-deals involving Chinese firms, and focus our attention on a much smaller hotel purchase by private equity high flyer HNA Group. Frankly speaking, I find this new investment in US hotelier Red Lion Hotels (NYSE: RLH) a bit puzzling, as the actual size of the deal is very small and hardly worthwhile for a leading Chinese private equity investor like HNA. But that said, global real estate and hotels in particular have emerged as a hot commodity for big Chinese investors over the last year, meaning this particular deal could presage a larger purchase in the sector by HNA as it tests out the market.
According to the latest reports, HNA, which is parent of Hainan Airlines (Shanghai: 600221), has purchased about 3 million Red Lion shares, giving it 15 percent of the company. (English article) The purchase price wasn’t disclosed, but the deal would have a relatively modest value of about $20 million based on Red Lion’s latest stock price.
There’s not much more detail in the reports, which are based on a filing by Red Lion with the US securities regulator. Red Lion itself is quite a minor player in the US hotel market, with 130 properties in 31 states. The brand is considered mid- to lower-tier, and doesn’t look like a particularly strong candidate to expand outside of the US anytime soon.
All of that brings us to the larger question of what HNA’s motivation could be for this particular investment. It’s unlikely the move is purely financial, since even a 100 percent jump in Red Lion’s share price would only result in a profit of around $20 million for HNA, a tiny sum for such a large company. Instead, perhaps this move presages something bigger, and reflects the recent interest in global investments by both Chinese private equity and domestic hotel operators.
The biggest of those investments came last year, when the relatively unknown Chinese insurer Anbang announced its purchase of the famous Waldorf Astoria hotel in New York from Hilton (NYSE: HLT) for a record price of nearly $2 billion. (previous post) Another Chinese insurer named Sunshine Insurance made headlines after that with its purchase of 2 major hotels in New York and Sydney for a combined $630 million. And Chinese hotel operator Jin Jiang (Shanghai: 600754; HKEx: 2006) made headlines last fall when it purchased a European portfolio of more than 1,000 hotels for up to $1.5 billion. (previous post)
HNA looks similar to the big insurance companies in terms of investment strategy. At the same time, Red Lion looks like the kind of target that might interest a company like Jin Jiang, or perhaps some of China’s other up-and-coming hotel operators like Homeinns (Nasdaq: HMIN) or China Lodging Group (Nasdaq: HTHT). Accordingly, I could envision some kind of future deal that might see one of the Chinese hotel operators make a bigger move into the US, with HNA acting as the primary financial backer.
The most obvious deal would see a company like Homeinns or Jin Jiang team up with HNA to make a buyout offer for all of Red Lion’s shares. Such a move would give the Chinese operator an affordable and relatively solid base to try and build up a US operation if it decided to test out the market. Other options could see a similar Chinese alliance target another US hotel chain of comparable scale. Of course all of this is just playful speculation on my part. But that said, I do expect that the recent string of Chinese hotel deals is only just beginning, and we’ll start to see some big moves soon as Chinese companies look for a place in the lucrative global lodging sector.
Related posts:
