Indian Hotels - Fruitful acquisition???... - ICICIdirect

Indian Hotels which holds about 6.9% stake in Orient Express Hotels (OEH) yesterday announced an offer to acquire entire balance of 93.1% stake of the company at US$12.63 per share, a 40% premium to the stock's closing price.

Under the proposed deal, Italian group Charme II Fund, managed by Montezemolo and Partners S.p.A, would invest US$100 million for a minority stake in the newly combined group.

IHCL would contribute US$650 million in cash while the rest would be funded by other Tata group entities and debt from Bank of America, ICICI Bank and Standard Chartered Bank. IHCL would also assume Orient-Express debt, which stood at $529.5 million at June 30, 2012.

Considering the large quantum of deal, slowdown in US & Europe and higher leverage of the company, we believe this deal if succeeds, would put more strain on the profitability and valuations of company on combined basis going forward. However, on the other hand, due to slowdown in the US and European region, the asset value of OEH has come down below its intrinsic value, In that sense it may make this proposal viable from very long term(5-7 years) perspective.

Source : Equity Bulls

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