China's Jin Jiang buys controlling stake in budget 7 Days

The merger we thought would happen has.

China's Shanghai Jin Jiang International Hotels is making a big push on the domestic economy front and has reportedly acquired a controlling stake in budget hotel chain 7 Days Group Holdings for US$1.3 billion deal.

Jin Jiang will now own 81 percent of Keystone Lodging, the parent company of the 7 Days Hotel Group. This deal values Keystone Lodging at 10.8-billion yuan.

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7 Days Hotel Group, which operates economy hotels throughout mainland China, was delisted from the NYSE two years ago after it was taken private by Plateno Hotels Group for $688 million.

7 Days was founded in Guangzhou in 2005.

At the time of the deal, co-chairman of Plateno Hotels Group Zheng Nanya said that 7 Days Inn's expansion will be quick, with a promise of 2,000 hotels by 2014.

In regard to the deal for 7 Days, some investors are wary that Jin Jiang paid too much. The deal reportedly values 7 Days Group at 12 to 14 times 2015 earnings. By comparison, China Lodging (HTHT) is valued at 8 times and Homeinns (HMIN) is being taken private at 7 times.

Shares of Jin Jiang Group fell 7.4 percent after the deal was announced.

According to a story from Barrons, Jin Jiang’s parent, The Jinjiang Group, "is ambitious," looking to be among the top three hotel groups in the entire world. According to Barrons, after the 7 Days deal, it will only be the fifth largest. The acquisition could signal further down the line for Jin Jiang.

Last month, Jin Jiang Hotels invested approximately US$289.8 million for an 80-percent stake in the midrange Vienna Hotel Group and its restaurants. The acquisition of Vienna Hotels Group, which is based in Shenzhen, China, will add an additional 479 hotels with 60,000 rooms to Jin Jiang Hotels’s portfolio.

Shenzhen-based Vienna Hotel Group was established in 1993 and its portfolio is comprised of three- to five-star business hotels in more than 100 cities across China under six brands, including the Vienna Hotel, Venus Royal Hotel and Vienna Apartment Hotel.

Jin Jiang operates hotel across all segments and asset types, from full service to select service, under the brands J.Hotel, Jin Jiang, Metropolo and Jin Jiang Inn.

Jin Jiang also owns 50 percent of Interstate Hotels & Resorts, along with its JV partner Thayer Lodging Group.