Recession is a great leveller, great enough to level out even the most humiliating racist, casteist, classist differences.
What else would explain the U-turn of Paul White and others in the Oriental Express-Tata saga?
Consider this: The Tatas had made an offer for an alliance with the luxury hotels group in 2007, which was rejected as its then top brass thought its brand image and premiumness will take a knock if they get associated with an Indian hotel chain—an outright racist rebuff.
Then the share price of Orient Express ruled at $57.79. The subsequent economic slowdown, which still continues to hurt the hospitality industry world over, has pulled the stock down by around 80 percent, to $11 yesterday.
Paul White, former CEO of Orient Express who was party to the earlier rebuff, has done an about turn and is now helping Tatas win the deal.
According to media reports, he even thinks that this is the best way to turn around the group which has been making losses for the last four years.
It has to be remembered that White holds 82,490 shares of Orient Express and that Indian Hotels Company’s (IHCL) offer of $12.63 is at a 40 percent premium to the market price.
The offer pushed up Orient Express shares by more than 22 percent on Thursday. According to a report in the Business Standard, almost half of the stock’s 48 percent rise this year since January has come after the Tata offer.
This explains the reversal in White’s racist stance.
The odds for Tatas: According to a Times of India report, White and Tata veteran Krishna Kumar are engaged in talks with key stake holders of Orient Express.
IHCL has made the offer along with White and Ferrari boss Luca Cordero di Montezemalo. IHCL holds 6.9 percent in Orient Express.
There are other shareholders who are likely to support the Tata offer. Cohen & Steers, the largest shareholder with 13.16 percent, and real estate tycoons Reuben brothers, with 6.2 percent, are already unhappy about corporate governance of Orient Express, especially its veto power to block takeovers, the ToI report said.
Talks are on with founder James Sherwood, independent board members and institutional investors.
If clinched, how good is this deal for Indian Hotels Co? Analysts are almost unanimous in saying that for the short term it offers no good. But for the long term, yes.
Strategically, Orient Express is a perfect fit. It is in the leisure and adventure segments, while Indian Hotels is in the business segment, says another report in the Business Standard.
But IHCL shareholders’ fears are palpable. “As a shareholder, one watched with dismay the loss Indian Hotels sustained on its initial investment. One hopes this time, it will be different,” an anonymous Firstpost reader commented.
In 2007, IHCL had made its investment at $42 a share, which witnessed a value erosion of around 68 percent over five years.
According to a ICICI Securities report, cited by the BS report, long-term could mean five-seven years. This is the precise reason for the more than 5 percent fall in Indian Hotels shares yesterday.
“Generally, acquisitions for Indian Hotels have not been rewarding for the company,” said Niraj Mansingka, an analyst with Edelweiss Capital in Mumbai told Reuters. The company’s international portfolios, especially that of the US, are recording losses, the report said.
Will the Tatas be able to fight it out if a counter offer is made? How much more debt can the company take on, while its debt is already around Rs 3000 crore?
These suspicions seem to be bothering IHCL shareholders.
Krishna Kumar counters all such suspicions in the report in the BS. Tata group shareholders have always given a thumbs down to such “daring” takeovers, he said.
“But, in the long run, shareholders have benefited from our daring moves,” he has been quoted as saying, giving examples of JLR and Glaceau.
Tata Global Beverages had bought energy drinks company Glaceau and sold it in 2007, to make a cool profit of $523 million, the report says.
Whatever the concerns, there are good chances that IHCL may clinch the deal this time round.
Founder Sherwood has surrendered his right of first refusal on some marquee hotel properties of Orient Express, a move aimed at supporting the IHCL bid.
It is the recession, stupid.