Accor launches €300m buyback

Accor Pullman Paris Tour Eiffel
Accor Pullman Paris

Accor launched a €300m share buyback as part of its plans to return €1bn to shareholders over the next 24 months.

The return marked the completion of the group’s move to an asset-light structure, with plans this year to focus on its loyalty programme.

The company said that the purchase price per share would not exceed €70. Accor’s share price at the time of writing was €38.91. October saw the company narrow its FY Ebitda range at the top end, from €820m to €840m to between €820m and €840m, citing the China trade war.

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In a call to investors last month, the group described a “two-pronged approach to re-deploy capital”, by increasing shareholder returns and continuing with bolt-on hotel acquisitions of small and midsize asset-light groups “consolidating leadership in key markets, getting access to leadership in high-growth markets” and “gaining speed on niche segments such as lifestyle”.
 
Sébastien Bazin, chairman & CEO, Accor, said: “Accor has now become a fully asset-light group. By combining a two-year €1.0bn shareholder return programme with the pursuit of a targeted acquisition strategy, the group demonstrates the strength of its new model and its ability to rigorously execute its strategic roadmap.

“We are now focused on the organic growth of our portfolio, the strengthening of our leadership in our key markets, the attractiveness of our brands for our customers and our owners and an unwavering commitment to promoting our values and a distinctive vision of hospitality.”

The group has come under increasing pressure in recent months, with reports of shareholders disgruntled at the company’s share price and an increased interest from activist funds.

In November Accor investor CIAM said that Accor was undervalued by public markets and a good potential target for a private equity buyer. Catherine Berjal, CEO, CIAM, said that a buyer could dispose of Accor’s non-core financial assets and return up to 35% of its market capitalisation in cash, with additional options including selling its luxury brands.

Last month saw the company’s board reaffirm its faith in Bazin, unanimously recommending that he should remain as chairman and CEO for a three-year term taking his tenure to 2023. The board said that the proposal conveyed “the renewed confidence the board has in its leader, and the choice to pursue the implementation of the strategic roadmap. The board emphasised the extent of the transformation achieved and its will to maintain Accor in a sustainable growth and value creation model for its shareholders over the coming years”.

During the third quarter, Accor opened 60 hotels with 8,500 rooms. At end-September 2019, the group's portfolio totalled 726,345 rooms in 4,946 hotels and the pipeline represented 1,181 hotels corresponding to 205,000 rooms, with the group expected to reach 5,000 by the end of the year, with net system growth of 5% and “significant openings” in the fourth quarter of the luxury segment.

The company’s pipeline was dominated by Asia-Pacific, with 101,000 rooms, followed by 43,000 in the Middle East and Africa and 41,000 in Europe.

 

Insight: This year’s big project is going to be Accor’s loyalty programme, ALL. News of plans to invest €225m in the offering last year caused shareholders to make quite the series of frowny faces, hoping as they were that the group would continue in a frenzy of M&A-based growth and that this growth would result in a frenzy of cash, that way that shareholders like. You know how they are.

But Bazin has pulled back from the deal-a-month club and is looking to that which is yet unproven in the eyes of investors; loyalty.

The company is seeking to emulate its US counterparts; increasing its number of bookings from loyalty to 30% from 45%; increasing the amount of money it brings in from partnerships such as credit cards. The group forecast a 10 percentage point increase in contribution to turnover from the loyalty programme increase, €100m in partnership revenue (from €6m) and three point revpar increase.

Profile, profile, profile. To push this, it has done deals with groups including SBE to give it a US footprint and continues to grow its luxury portfolio, where the more lucrative loyalty members like to hang out.

Those luxury properties have made some of the group’s investors hungry for a breakup. As LVMH’s Belmond buy attested, there’s appetite for luxury flags and Accor has a number of attractive ones. In the other direction, nothing bolsters a loyalty programme more than a massive merger, just ask Marriott International.

With the company’s share price failing to inspire, the pressure is on for a dramatic move. Points, in this case, do not appear to mean prizes.

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