Tiesco-Fico joint venture to buy operator of Mercure hotels

 

To proceed with the acquisition, Tiesco will establish a joint venture, to be named Newco, which will be equally owned by the Thai company and Fico Holding (UK). Newco will then purchase 27.1 million shares of JHH with a par value of one British pound, amounting to 100 per cent of the paid-up capital, for about 77.5 million pounds (Bt4.3 billion). 

The shares are currently held by Patron Jupiter Holding and West Register Hotels, a unit owned by the Royal Bank of Scotland. 

Under the acquisition plan, JHH will be made debt-free from third parties. 

Tiesco and Fico will arrange for Newco to borrow 82.5 million pounds. This will then be lent to JHH to repay its debts to financial institutions and current shareholders. Nevertheless, based on the preliminary agreement, the total price of the acquisition of all assets, including the loan repayments, will not exceed 160 million pounds. 

The acquisition value will be about four times Tiesco’s assets totalling Bt1.18 billion. Hence the company will have to submit the application and other related documents to the Market for Alternative Investment to review the qualifications of the listing status of the company under the acquisition-of-assets regulations. It will seek approval from shareholders during an extraordinary shareholders’ meeting to be held on October 5.

Fico Holding (UK) was established this year. It is part of the Fico group of companies, owned by the Srichawla family, which has invested in 50 different companies in diversified businesses ranging from textiles to healthcare, property development, technology, retail, food and beverages. 

JHH had total assets of Bt7.33 billion, total liabilities of Bt5.88 billion, and net income of Bt215.11 million as of the end of 2014. 

 

Properties in UK 

The company directly owns 25 hotels in the UK, and indirectly owns one, with a total of 2,883 rooms. The average occupancy rate was 66 per cent last year, up from 61 per cent in 2012 and 65 per cent in 2013. 

Jupiter hotels are managed by Accor Group under the Mercure brand, for which the franchise agreement will expire in 2031. Twenty hotels in the group are located on freehold land owned by JHH, while six locations are under long-term lease (not less than 30 years).

JHH reported a consolidated net profit of 2.65 million pounds last year, down from 3.86 million pounds in 2013. Total revenues also decreased from 74.26 million pounds in 2013 to 42.56 million pounds last year.

JHH’s fair value, assessed by a financial adviser using the discounted-cash-flow method, is between 98.25 million and 112.92 million pounds, which is higher than the purchase price of 77.5 million.

“Entry to the transaction will generate revenue from the business relating to the company’s construction activities.

“At the same time, it is a diversification to the investment in hospitality business overseas, which has the management agreement with the well-known hotel manager, Accor group, under the brand Mercure, |from previously focusing in Thailand only,” said Tradsin Chongussayakul, managing director of Tiesco.

He said the acquisition would enhance the firm’s potential to introduce a real estate investment trust in the future that will allow it to sell or transfer its ownership of JHH to the REIT, which would generate good return for its shareholders. 

To finance the acquisition, the company will pay cash in an amount not exceeding 20 million pounds and will use the Bt3 billion in capital raised from a private placement of 30 billion shares at the price of Bt0.10 per share, offered from August 10 to October 7. 

The remaining balance of 120 million pounds will come from bank loans, whereas the borrower will be the joint-venture company incorporated by the Tiesco and Fico, in which Fico will pledge the shares in the joint venture and JHH’s properties as |collateral.