<B> Bass Takes Hotel Prize</B>
<I>Adds Inter-Continental To Its Holiday Hospitality Holdings</I>
By Maria P. Vallejo
<I>London</I> - Bass PLC last week purchased Inter-Continental Hotels & Resorts, beating out three other major hotel companies and opening new avenues for its Holiday Hospitality Corp. customers.
Bass defeated well-known lodging companies Ladbroke Group PLC, owner of Hilton International, Patriot American and Marriott during the public auction. It now will be able to provide corporate buyers an upper-upscale tier, a larger U.S. presence and more international upscale and midpriced properties.
The $2.9 billion merger agreement, including assumed and reclaimed debt payments, will fill a segment void in Bass' hospitality portfolio, which is operated by the Atlanta-based Holiday Hospitality organization. The acquisition will offer corporate travel buyers working with Holiday Hospitality the possibility of negotiating with upper-upscale hotels in existing international and new U.S. locations.
Inter-Continental will operate under Holiday Hospitality's corporate umbrella, coinciding with the merger's completion by March 31. Like the other brands under Holiday Hospitality, Inter-Continental will be assigned its own president, possibly someone retained from the current company.
The acquired hotel company's portfolio includes 117 upper-upscale Inter-Continental properties, 20 midpriced Forums and 50 independent hotels. After the hand over, Holiday Hospitality will reap the benefits of operating the Inter-Continental hotels, which will retain their brand name and hopefully bring new upscale corporate travel customers to the Atlanta-based hotel company.
The acquisition "provides Bass with a brand in the four-star to five-star category and additional brands to leverage off the current infrastructure," said analyst Paul Keung at New York-based Deutsche Morgan Grenfell. "Inter-Con is in many key markets. And it's in the price point and niche that Holiday Inn could not penetrate, even with Crowne Plaza."
Inter-Continental was among the last few hotel chains in the highest tier that were still available for acquisition following two years of massive mergers in the hospitality industry. Bass proved itself a serious competitor during the auction when it outbid Ladbroke Group PLC and paired-share REIT Patriot American Hospitality Inc. Sources said Marriott proposed a higher bid, but could not accommodate the March 31 closing deadline required by Seibu Saison Group. The Japanese company, which bought the chain in 1988 for $2.2 billion, was forced to sell it after some subsidiaries incurred debt during the current financial crisis sweeping Asia.
Despite the fact that Holiday Hospitality already had an existing upscale brand, Inter-Continental will not have a predatory relationship with Crowne Plaza, analysts said. Although some of the 130 Crowne Plaza properties are perceived as upper-upscale accommodations, the majority of the brand in the past has had difficulty defining itself as part of that niche. Inter-Continental, on the other hand, consistently drew higher perception, rates and occupancy.
With the merger, hotel room buyers not only will find a new level of properties available for corporate negotiations through Holiday Hospitality's corporate office, but also will find more overseas hotels waving the familiar flags of Crowne Plaza and Holiday Inn. Holiday Hospitality officials are reviewing Forum hotels for possible reflagging as Crowne Plazas and Holiday Inns. "We are going to be looking at the Forum brand to determine whether it's the right brand for us to use for that midmarket development in Europe," said Thomas Oliver, Holiday Hospitality's president and CEO.
A single worldwide sales organization will be formed to handle all corporate negotiations, while individual hotel properties also will continue to develop their own corporate client lists (<I>BTN</I>, Nov. 10, 1997).
An even exchange of local market strengths also will become apparent after the acquisition is completed, analysts predicted. Although Holiday Hospitality has a strong presence in the United States, it has limited recognition in Europe, Latin America and the Middle East, where Inter-Continental has a greater concentration of hotels. While the Atlanta-based company temporarily may rely on the international presence inherited through the acquisition, company officials plan to expand their newest brand in its home market.
Inter-Continental hotels draw high numbers of U.S.-based business travelers to their European properties, but the brand lacks a significant U.S. presence. Its eight U.S. locations include Chicago, Dallas, Los Angeles, Miami, New Orleans, New York, San Francisco and Washington, D.C. Despite their ideal business locations, their small number cannot accommodate the rising demand for higher upscale supply, company officials acknowledged.
"A major focus for us is to develop the Inter-Continental brand and make it more available in the United States," Oliver said. "Inter-Continental has clearly been the leader in having properties in 69 countries around the world, but in many ways it's not particularly well known in the United States because it just don't have the properties."
Holiday Hospitality will concentrate the expansion of the Inter-Continental name in key business locations, and will consider opening multiple hotels in the same major cities. The expansion will take place through a combination of conversions of existing properties and construction of new ones, a trend becoming increasingly prevalent in the upper-upscale market segment. "I think the upscale market is going through a period in which there are quite a few more new build projects that are being undertaken," Oliver said. "We're certainly going to take advantage of every opportunity there is in conversions and new builds."
While Holiday Hospitality links all its hotels through a corporate sales force under its umbrella company, properties will be further linked by the company's signature property management system, Holidex. The system is undergoing a reconfiguration designed to better capture guest history, improve flexibility in handling rates and communications, and create a link to Priority Club, Holiday Hospitality's largest frequency program.
The technology platform, which supports 2,400 properties, now is being implemented at Holiday Hospitality's current brands. After the merger closes, Inter-Continental and its lower tiered hotels will be tied to the platform. Although corporate officials anticipate using the Holidex platform company-wide, technology and programs used by Inter-Continental also may be disseminated.
"We're certainly open to anything that they're doing that offers us greater ideas or better technology," Oliver said. "Teams from the two organizations will work over the course of the next 60 to 90 days to determine what exactly is the best way to utilize and integrate things."
In the new configuration, Holiday Hospitality will operate all hotels located outside the United States with the exception of those in Japan. Despite Seibu Saison Group's need to sell off Inter-Continental to settle the debts of its other subsidiaries, its officials negotiated the rights to remain in operational control of hotels located in their local home market in Japan.
This split in management should not pose a problem for either the purchasing company or its future corporate clients, according to Holiday Hospitality officials. In fact, Saison's understanding of the Japanese culture and years of experience in the market can only improve the brand.
"We saw that they had a very strong interest in staying very involved in the brand over the long term, and this was a great way to give them the opportunity to participate in the development of a market in which they have great strengths," Oliver said. "This structure lets them really take advantage of the strengths and the relationships that they have in the Japanese markets.