Why China Lodging merged with Beijing's Crystal Orange Hotels

Linsen Taipei Orange Hotel, Taipei, Taiwan (China Lodging acquires Crystal Orange to ensure its foothold and expansion in China. )

China-based multi-brand hotel company China Lodging Group announced that its subsidiary, China Lodging Holdings, acquired all of the equity interests of Crystal Orange Hotel Holdings' shareholders for approximately $531.9 million last Thursday. The Antitrust Bureau of Ministry of Commerce of China approved the transaction.

Upon closing, Crystal Orange’s hotel business joined part of China Lodging’s network. The companies believe that this acquisition will combine Crystal Orange’s positioning with China Lodging’s coverage and development capability in China. “We value Crystal Orange’s brand recognition and postmodern design. Their style and positioning match perfectly with China Lodging’s philosophy and brand portfolio. This transaction enables both companies to offer their members more choices and further strengthens China Lodging’s leading position as one of the largest hotel groups in China,” China Lodging’s CEO Jenny Zhang said in a statement.

China Lodging’s management will revise the full year 2017 guidance, taking into consideration the financial impact of the transaction. More details on the financial impact of the transaction and revised full year 2017 guidance will be provided on the company's earnings call for the second quarter of 2017. During the earnings call for the first quarter of 2017, the company revised its 2017 full year guidance for net revenues growth from 10 percent to 13 percent year-over-year. Originally, the company had not taken into consideration the financial impact of the transaction.

Hotel operator and franchiser China Lodging Group maintains 12 brand names. As of March 31, 2017, the company had 3,336 hotels or 335,900 rooms open in 369 cities. With a primary focus on economy and mid-scale hotel segments, China Lodging Group’s brands include Hi Inn, HanTing Hotel, Elan Hotel, JI Hotel, Starway Hotel, Joya Hotel and Manxin Hotel. The company also has the rights as master franchisee for Mercure, Ibis and Ibis Styles and co-development rights for Grand Mercure and Novotel, in the Pan-China region.

The company’s business includes leased and owned, manachised and franchised models. Under the lease and ownership model, the company directly operates hotels typically located on leased or owned properties. Under the manachise model, the company manages manachised hotels through the on-site hotel managers it appoints and collects fees from franchisees. Under the franchise model, the company provides training, reservation and support services to the franchised hotels and collects fees from franchisees. However, it does not appoint on-site hotel managers. As of March 31, 2017, China Lodging Group operates 23 percent of its hotel rooms under the lease and ownership model, 77 percent under franchise models.

Beijing-based boutique hotel operator Crystal Orange was founded in 2006. Its portfolio includes more than 100 hotels primarily located in tier one and tier two cities. Crystal Orange Hotel, Orange Hotel Select and Orange Hotel are the company's three flagship brands.