With Carlson acquisition, HNA continues impressive global expansion

HNA Group headquarters.

The acquisition last week of Carlson Hospitality Group by a large Chinese group best known for its stable of domestic airlines is the next step in what is rapidly becoming a massive global expansion—an expansion that encompasses a broad swath of the global tourism value chain from hotels to airlines and even a currency exchange platform.

How They Are Doing It

Tapping into financing from eight separate companies listed in China, HNA is morphing itself from a strictly provincial state-owned company into a conglomerate of global stature. In the last year alone, HNA Group has spent more than $20 billion through one subsidiary or another to acquire an ever greater portion of the global tourism value chain.

HNA’s deal with Carlson is their second transnational acquisition this month and its fourth of the year. Earlier in April, the group put up $1.5 billion to acquire Gategroup, a Swiss airline catering business. Also in mid-April HNA Tourism agreed to acquire International Currency Exchange (ICE) from UK holding company Lenlyn Holdings, gaining access to a network of foreign currency exchange operation with 350 branches in 19 countries.

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In July 2015, the group paid $2.8 billion for Swissport, a cargo handler. The group also took up a $420 million stake in Brazil’s third-largest airline and a $500 million piece of Tuniu, a booking website. It also has a stake in Uber China. Through a pair of associated companies, the group paid $7.6 billion for an aircraft leasing firm. It agreed to pay $6 billion for American electronics company and information technology distributor Ingram Micro in January.

In terms of net debt, little-known HNA is now among the major companies in the world, according to Bloomberg data and the company’s own prospectus from a bond offering last year. Its debt as of the end of September 2015 added up to almost RMB145 billion ($22.4 billion), more than ConocoPhillips or British American Tobacco.

HNA Group, which is based on China’s tropical island province of Hainan. It as holdings across various sectors including aviation, finance, hospitality, logistics and tourism. The group controls Grand China Airlines, Hainan Airlines, Tianjin Airlines, Lucky Air, West Air, Yangtze River Express, my Cargo, Ghana AWA Airlines, Aigle Azur Airline and other aviation properties with almost 320 airlines and 570 routes that touch 190 cities.

More to Come

The move to acquire Carlson may be the latest but it is unlikely to be the last, said Michael Chin, Executive Chairman of WT Global Hospitality Investment Co in Hong Kong.

“HNA has been in the acquisition mood lately, but like most other mainland Chinese investors, they need to have a proper game plan with professional evaluation prior to their hospitality acquisitions in order to ensure success later,” he said. “They will certainly try to make further hospitality acquisitions in the near future.”

The deal also follows a pattern of HNA acquiring brands that can synergize well with its existing operations. Carlson has decent global brand recognition but it does not have a major presence in Asia Pacific, which HNA does. The acquisition could open the door for a rebranding of some HNA properties in China while also presenting opportunities to steer Chinese tourists to its hotel properties in other regions.

HNA and Carlson announced on April 27 that the two companies had reached an agreement for HNA to acquire Carlson’s holdings for an undisclosed amount.

Although not well-known in more developed markets, HNA already possesses a robust hotel presence in China, which could be leveraged to expand its newly acquired brands’ global footprint. The company operates more than 60 hotels more than 10,000 rooms in major markets including Beijing, Guangzhou, Hangzhou, Hainan, Kunming and Qingdao and other cities.

“Within China, HNA’s Tangla Hotels & Resorts, HNA Grand Hotel, Business Hotel and HNA Express Inn will possibly undergo rebranding in the foreseeable future,” Chin told HOTEL MANAGEMENT. “This will hopefully improve its relatively low ADR right now, as well as the overall quality of their hotel assets.”

HNA’s other travel-related assets offer synergies with the Carlson acquisition as well.

“With HNA's expanding operations within international aviation, tourism, hospitality, finance and online services, this acquisition will enhance its global weighting within the international hospitality ground,” Chin said.

Ideally, Carlson properties will be located in whichever destinations HNA Airlines serves, he said.

HNA’s deal with Carlson, which is subject to regulatory approval, is expected to close in the second half of this year. Under terms of the agreement, HNA will acquire all Carlson Hotels, which owns Radisson and its Blu, Park Plaza, Park Inn and RED sub-brands, Park Plaza, and Country Inns & Suites, as well as the Club Carlson global hotel rewards program.

According to terms of the deal, HNA will also acquire Carlson’s 51.3 percent majority stake in Rezidor Hotel Group.

“As part of HNA Tourism Group, Carlson Hotels will have an opportunity to advance our commitment to providing guests with hospitality world-wide,” said David Berg, Carlson Hospitality Group, CEO.

All this expansion does raise some questions about how the company is financed. The group is basically a state-owned company, controlled by the provincial government of Hainan.

HNA’s buying spree has not gone unnoticed in China, particularly among the country’s hyperactive online community.

Writing on his investment blog on Sina Weibo, stock market watcher Laozenganiu told his 90,000 followers that HNA managed to raise tens of billions in stock markets in Hong Kong and Mainland China through last June and has benefitted from a relatively strong RMB to acquire properties. 

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