LEISURE: Voracious Jin Jiang Eyes Shenzhen Hotel Company
Bottom line: Jin Jiang’s pursuit of Shenzhen-based Vienna Hotel Group, combined with other recent M&A, could vault it to China’s leading hotel operator, though its sudden rapid expansion looks at least partly politically motivated.
Shanghai-based hotel operator Jin Jiang’s (HKEx: 2006; Shanghai: 600754) recent appetite for M&A continues to grow, with word that the company is in talks to buy a Shenzhen-based rival in a deal that would boost its hotel count by a third. A successful purchase of the privately held Vienna Hotel Group would mark the latest mega-purchase by Jin Jiang, which has suddenly emerged as China’s hot hotel company to watch.
Jin Jiang is certainly a household name in my adopted hometown of Shanghai, and this latest deal, when combined with others, would move the company into the ranks of one of China’s top 5 operators and the only one with a global presence. There’s only one problem with all of this, namely that Jin Jiang is one of the only top players that’s a state-run company. That contrasts sharply with other leading names like Homeinns (NYSE: HMIN), China Lodging (Nasdaq: HTHT) and Plateno, that are all privately owned.
Its state-owned status means that Jin Jiang has access to huge state-backed cash reserves that the other operators lack, and also that its motivations may be at least partly political in this sudden expansion. In fact, Jin Jiang’s recent fondness for M&A looks suspiciously similar to activity by Bright Food, another leading Shanghai-based state-owned company that has embarked on its own massive buying binge over the last couple of years.
According to the latest headlines, talks between Jin Jiang and Vienna are already at an advanced stage, prompting Jin Jiang to request a halt in the trading of its shares. (Chinese article) There’s no mention of a deal value, but we do know that Vienna is about a third of Jin Jiang’s size both in terms of hotel count and number of rooms. Thus based on Jin Jiang’s current market value of about $2 billion, the deal could be worth about $700 million.
This particular deal would come just weeks after media reported that Jin Jiang was in talks to buy 80 percent of Plateno, owner of the 7 Days hotel chain and also the franchisee for Hilton’s (NYSE: HLT) mid-line Hampton brand in China. (previous post) I previously said that deal was likely to fetch a price tag of more than $1 billion, though no official announcement has come yet.
Buying Binge
In yet another major acquisition, Jin Jiang also announced late last year it would pay up to $1.5 billion for Louvre Hotels Group, a leading European operator. (previous post) Some quick math will show that these 3 purchases alone add up to more than $3 billion — a hefty sum for a company whose own market value is just $2 billion.
That leads to my earlier assertion that political forces may be an important factor behind this latest buying binge, as China pushes its big state-owned companies to go global. As a Shanghai resident, I can say with confidence that the city’s leaders are quite proud of their heritage as China’s commercial capital and are working hard to extend that status to a regional and even global level.
The Bright Food example I’ve cited above illustrates that point, with the city-owned company spending billions of dollars over the last 3 years on a series of major global acquisitions. Those include purchases of majority stakes in leading Israeli dairy Tnuva and top British breakfast cereal maker Weetabix for more than $1 billion each.
Companies like Bright Dairy and now Jin Jiang have access to nearly unlimited funds for such M&A due to their connections to the Shanghai city government, and I’m fairly confident that Jin Jiang is tapping those funds now to fuel this acquisition spree. That’s not to say that these purchases aren’t good ones, and that Jin Jiang could soon become a major global hotel operator.
But if I were an investor, I would look carefully at some of these acquisitions before buying Jin Jiang’s stock. I would also expect that one or more of these companies it’s buying may contain hidden problems that could quickly cause headaches for this state-run company with global aspirates.
Related posts:
