The Orient Express – who hears a lucrative bid coming?

The Orient Express – who hears a lucrative bid coming?
28 November 2018

Does luxury traveling come with a more iconic brand than Orient Express?

Can luxury lodging names like the Hotel Cipriani in Venice, the Copacabana Palace in Rio de Janeiro, Reid’s Palace in Madeira, or the Mount Nelson Hotel in Cape Town keep up with it?

In a way, it doesn’t really matter. Because all of these historical names of luxury travel belong to one and the same company.

Belmond Ltd. is a luxury hotel group listed on the New York Stock Exchange (ticker symbol “BEL”), and after years of acquiring them like rare collectibles, it owns one of the world’s largest groups of legendary hotels and travel experiences. Among its 46 assets across 24 countries are the Venice-Simplon Orient Express train as well as a few other heritage train lines, but mostly grand, old hotels. Until 2014, the company was called Orient Express Ltd., but it then changed to its current name to reflect that it’s really a holding for a broad selection of luxury travel experiences.

With a price of $18.40, shares in Belmond currently trade nowhere near the ticket price for the Orient Express. What’s more, whereas the latter falls into the category of conspicuous consumption, the former probably falls under the category of quick, shrewd investment.

Here is why….

Belmond has put itself up for sale

When a company announces it is carrying out a “strategic review,” that’s corporate code for “we are for sale, please send in offers.”

After turning down an approach by a potential Indian buyer in 2013, take-over rumours never really went away. There is always a market for so-called trophy assets, and it’s been clear from the day of the announcement, that Belmond being for sale was going to attract an entire slew of offers.

Goldman Sachs was hired to manage the bidding process. The name of potential suitors is obviously a close-guarded secret, but among the names that have been linked to a potential bid are hotel groups such as Hyatt Hotels and Hilton Worldwide Holdings, as well as private equity groups such as Blackstone Group and KKR.

Inevitably, there’ll also be the odd sovereign wealth fund and billionaire investor. If you had the odd billion to spare or wanted to make your small, oil-rich country to be known as one of the world’s leading players in luxury traveling, could you resist a bid?

What price for trophy assets?

Officially, Belmond asked for offers over $1.8bn, which would translate into a share price of $17.49. There are 102,959,000 shares outstanding.

When this became public, the share price jumped from $11 to around $16. It’s since been climbing further, last trading at $18.40. This gives the company a valuation of $1.92bn, which is already well in excess of the initial asking price of $1.8bn.

Evidently, the market is expecting there to be enough bidders in the room for the final offer price to shareholders to be well in excess of a $1.8bn market capitalisation.

Having put my ears onto the tracks (no pun intended), I picked up rumours that current discussions are about a price tag that’s well over $2bn. Given that the share price is already trading above the official minimum bid, it doesn’t take a rocket scientist (nor any industry insights) to make an informed guess that there is a fair amount of bidding going on behind the scenes.

I’d put my bet on the final price coming out somewhere between $2.2bn and $2.5bn. That’d translate into a bid price between $21.37 and $24.20, which would be between 16% to 31% above the current share price.

At such a price, buyers would probably be overpaying somewhat when compared to the hotel’s relatively paltry earnings. However, trophy assets like these just don’t come to the market very often. Least of all, in such a large number! No doubt there’ll be one or the other potential acquirer who will be happy to pay a premium price for gaining the privilege of strutting around these hotels and being called their owner.

The first round of bidding is likely to come to an end in the very foreseeable future. If my information is proven right, there’d be a quick gain to be made. Notably, the downside is low. It’s already evident there are plenty of potential buyers, and whereas there is always some remaining risk of surprises, I'd expect this situation to come to a positive conclusion before year-end.

Investing is fun when you understand what the company does

Bid situations regularly provide the opportunity to make a quick buck. Margins aren’t that great, i.e., it’s not something where you can double your money overnight.

But with limited downside and a good chance of earning a way better return than most anything you can earn with bonds, current accounts and the like, this is an area that I have always kept a keen interest in.

All the more, when it involves a company whose business is something that is understandable, tangible, and even a bit of fun. And what could be more fun than to combine analysing a share with clicking through the websites of luxury hotels!

Shareholders of Belmond are likely going to have some spare cash soon. Some of which may well end up for booking hotels in some of said properties! Treating yourself to a bit of luxury is easier, after all, if the money to pay for it also came easily.

Best regards

Swen Lorenz

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