Tatas partner Italian fund to check into Orient-Express

Offer valued at $1.86 bn comes 5 years after Bermuda chain rebuffed Indian Hotels

Five years after being rebuffed by the Orient-Express management, the Tata Group-promoted Indian Hotels, which operates the Taj Group, today teamed up with an Italian fund to make a second attempt to take over the Bermuda-based chain of luxury hotels, resorts and trains, in part. In a late evening announcement, Indian Hotels said it, along with Charme II Fund, an Italian fund managed by Montezemolo and Partners SpA, had sent a letter to Orient-Express, proposing to purchase all outstanding shares of the company’s Class A common stock for $12.63 per share in cash.

The proposal is valued at around $1.86 billion (over Rs 9,600 crore), including the net debt of Orient-Express. The all-cash offer represents a 40 per cent premium to Orient-Express’ closing stock price on Wednesday, the last trading day prior to the announcement. While Indian Hotels has agreed to make an aggregate cash contribution of up to $650 million (about Rs 3,500 crore), Montezemolo will pump in $100 million (about Rs 534 crore) in cash for the deal. The rest will come from debt. Indian Hotels currently owns 6.9 per cent in Orient-Express.

The Italian connection to the deal is interesting. Orient-Express had rebuffed Indian Hotels’ attempt to take a significant stake in it in 2007 with the US company’s CEO Paul White writing to R K Krishna Kumar, vice-chairman of Indian Hotels, that he didn’t believe “there is a strategic fit between your predominantly domestic Indian hotel chain and our global portfolio of luxury hotels”.

BITTER-SWEET SYMPHONY

2007

• IHCL buys a little over 10% OEH class A shares
• IHCL buys more shares from open market for over Rs 1,000 crore and its stake hits all-time high of 11.5%
• IHCL makes offer to OEH for joining hands
• OEH rejects offer
• IHCL seeks apology in a strongly worded letter to OEH over its ‘libellous’ remarks

2008

• OEH does not apologise over its remarks
• IHCL refuses to sell its stake in OEH

2009

• IHCL does not participate in rights issue
• IHCL stake dips to 7.75%

2010

• Stake further shrinks to 7.06%
• IHCL rules out an exit due to substantial 50% erosion of share value

2011

• IHCL resumes dialogue with OEH for cooperation
• OEH rejects the proposal
• OEH stake dips further to 6.9%

Besides, Luca Cordero Di Montezemolo, director of Montezemolo, is also chairman of Ferrari and on the board of Fiat. A long-time friend of Ratan Tata, he convinced Tata to come on the board of Fiat. Their close friendship also resulted in Fiat and Tata Motors joining hands for industrial cooperation in India.

The Orient-Express stock rose 38 per cent to $12.41 in early trade on the New York Stock Exchange. The gain was the biggest since the shares began trading in 2000. Bank of America is the sole financial advisor to the Tatas on the deal.

“Indian Hotels has great respect for Orient-Express and we are very excited at the prospect of bringing our two great companies and brands together,” said R K Krishna Kumar.

Experts said the takeover of shares, if successful, would, however, not result in any management control of OEH (Orient-Express Hotels Ltd). The class B shares, not listed on the exchanges, are held by OEH’s wholly owned subsidiary Orient-Express Holdings. The holders of class B common shares have one vote per share, while holders of class A common shares have one-tenth of a vote per share.

So, the power of voting of Orient-Express Holdings is equivalent to 180 million class A shares. There are only a little over 102 million class A shares issued while there are a little over 18 million class B shares issued only to the promoters of OEH. This gives the promoters complete control of the company.