NEW YORK—Financial services provider Barclays said Thursday that Indian Hotels Company Limited’s bid to takeover Orient-Express Hotels Limited for $12.63 per share is “below our estimated value” of the Bermuda-based luxury hotel owner and operator.
In a research note, Barclays Analyst Sule Sauvigne said Barclays’ asset value analysis for Orient-Express “generates a value of nearly $18 per share and is based on an estimated value per key for each of the company’s assets.”
“While this offer is below our estimated asset value, we believe it still constitutes a reasonable valuation and could be seriously considered by the board,” the note reads.
Indian Hotels, a subsidiary of the Tata group, filed on Thursday an all-cash offer to purchase the company for a total value of $1.86 billion. The company already owns 6.9% of Orient-Express shares. There are 120.94 million shares of Orient-Express outstanding.
The per-share price offered in the bid is a 40% premium to Orient-Express’s Wednesday closing price ($9.02) and a 45% premium to the company’s 10-trading-day average. Orient-Express stock surged to $11.05 per share after the filing Thursday, closing the day up $2.03, or 22.5%.
Orient-Express’ market capitalization as of 9:45 a.m. EST Friday was $1.34 billion. The stock reached a high Thursday of $12.57 per share following the Tata news.
In a statement from Victoria Legg, director of corporate communications for Orient-Express, the board of directors said it will “evaluate the proposal carefully and respond in due course in accordance with the best interests of the Orient-Express Hotels Limited and its shareholders.”
According to representatives at law firm Joele Frank, Wilkinson Brimmer Katcher, which is representing Indian Hotels in the bid, Orient-Express has a poison-pill clause that prevents any of its internal shareholders from acquiring more than 15% of the company without an agreement by both parties.
Indian Hotels and Orient-Express met in August to discuss a strategic alignment, but at that time Orient-Express was not interested, according to a letter from Tata representatives to Philip R. Mengel, interim CEO of Orient-Express, which was filed to the U.S. Securities and Exchange Commission.
The bid was placed by a group consisting of Indian Hotels, Piem International and Samsara Properties (affiliates of the Tata group), Montezemolo & Partners (a private-equity firm based in Italy), and Paul White (former CEO of Orient-Express). Indian Hotels previously bid on Orient-Express in 2007 and that offer was rejected by the board at the time, of which White was a part.
This time around, the investors have agreed to a collective cash contribution of $750 million for the deal, with Piem agreeing to provide additional financing.
In the filing, it was also disclosed that the investor group had reached an agreement with James Sherwood, the founder of Orient-Express, to terminate his option to purchase the Hotel Cipriani Venice upon change of control of the company.
Acquisition challenges
Barclay’s Sauvigne said the Cipriani agreement removes what has been perceived in the market as a “longstanding obstacle” standing in the way of a third party purchasing Orient-Express.
Another roadblock in Indian Hotels’ plan to acquire Orient-Express is the company’s share structure. Orient-Express’ share structure is dual class, consisting of Class A and B shares. Indian Hotels’ bid is for 93% of the Class A shares, which trade publicly on the New York Stock Exchange and represent 85% of total shares outstanding. These shares hold approximately 36% of the voting rights. A wholly owned subsidiary of Orient-Express, called Orient-Express Holdings 1 Limited, owns all 18 million outstanding Class B common shares, which represents about 15% of outstanding shares and 64% of the combined voting power of the two classes for most shareholder vote matters.
“The company’s share structure has historically been concerning for investors, given the limited voting power of the publicly held Class A shares and the majority control of the company by the board and management through the Class B shares,” Barclay’s note reads. “In fact, the structure was challenged in a lawsuit in 2009 by two large shareholders. It was ultimately upheld in Bermuda courts, then appealed; the parties settled out of court.
“We believe this dual class share structure could once again become an overhang on the shares if this deal is rejected.”