Protea Back In Familiar Hands
Management-led deal at a discount puts focus back on regional growth.
By Jeff Weinstein, Editor In Chief -- Hotels, 5/31/2009 11:00:00 PM
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Protea Hotels, Cape Town, is 100% back in South African hands after a management-led consortia, including its black economic empowerment shareholders and Investec Private Equity, bought back a 74% stake at a steep discount from Australia-based Stella Hospitality Group. While the sale price was not revealed, reports say Protea paid less than ZAR1 billion (US$117 million)—about one-third less than what Stella paid (ZAR1.48 billion) for the stake in July 2007.
“It's great to have all the shares back on South African shores. With the expertise of the existing management team in place, we will carry on expanding our footprint across the continent and continue to deliver exceptional hospitality and growth,” says Arthur Gillis, group managing director of Protea Hotels, in a statement.
When the original sale of Protea Hotels was concluded, Stella intended to take the brand global as well as achieve further local expansion. “Although not completely isolated from the worldwide economical woes, South Africa and most of Africa has proven to be fairly resilient to the downturn,” Gillis told HOTELS' Investment Outlook. “When it became evident that we were probably not going to be able to proceed with these plans given the crisis, we elected to follow the route of reacquiring the brand and the group.”
Some reports suggest this is not necessarily the best deal for banker Investec, as Protea has a substantial debt burden. In fact, Investec was the main bank behind Stella's purchase in 2007, providing finance of ZAR700 million that sat on Protea's balance sheet as a debt. Gillis has since said that part of the ZAR700 million owed to Investec has been converted into equity, and debt levels are significantly lower now as the new purchasing group has put up a significant amount of cash. The financial health of privately held Protea and its ability to generate cash flow to manage its debt remains unclear.
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| Protea Hotels' Arthur Gillis |
“While Protea's income stream is very biased toward one market, South Africa, that is no more so than many lodging companies,” says Trevor Ward, managing director, W Hospitality Group, Lagos. “Indeed, it has the second largest portfolio in Africa (Accor has more rooms and a much bigger pipeline). And Africa is the place to be, as the IMF's April forecasts, which, despite downward revision, still forecast growth for sub-Saharan Africa in 2009 and 2010. It is low growth, but growth all the same.”
The consortium will continue to operate and drive the business across Africa. At the time of the deal, Protea, celebrating its 25th anniversary in 2009, had six hotels under construction. The most anticipated developments expected in 2009 are Crystal Towers Hotel in Century City, just outside of Cape Town, and 15 on Orange Hotel in central Cape Town, both under the 5-star African Pride brand. Also to come in 2009 is Protea Hotel Ikoyi Westwood in Nigeria, Protea Hotel OR Tambo and Protea Hotel Umhlanga Ridge.
“We are extremely pleased to be back in the driver's seat at a time when all indications are that we as an industry in South Africa share an immense optimism about the future of tourism in our region,” Gillis says.
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