Once again, rumors of an Accor-IHG merger have surfaced, with France’s Le Figaro reporting that Accor in June set up an internal task force to consider the opportunity. According to the newspaper, Accor’s management board favored a deal, but its Chairman and CEO Sebastien Bazin was more cautious about moving ahead.
Le Figaro added that no formal approach has been made by Accor. Neither company would comment on the report.
Following the “bigger is better” trend, the news also comes during a week when Accor was downgraded to junk status by ratings agency S&P Global.
Among the benefits of an Accor-IHG merger would be to strengthen the combined portfolio in the budget space (Ibis, Holiday Inn Express, etc.), which is the segment supposed to recover more quickly from the current downturn. It could also make geographical sense, with Accor and its brands more skewed toward Europe, while IHG has larger operations in the United States and is also growing fast in Greater China. Consolidation, and its associated cost control benefits, would also enhance profits and shareholder value.
Combining the two companies would create the world’s biggest hotel company, with more than 1.6 million rooms. Based on current prices, a combined firm could have a market value of about US$17 billion.
“Strategically, an Accor-IHG combination makes sense – and one can argue that it has for some time,” RW Baird analyst Michael Bellisario told HOTELS on Thursday. “But, in terms of timing, now (or even a few months ago in June when it was being considered reportedly) does not make sense, in our opinion, given the challenges both businesses are facing. It’s telling that Accor chose cost cutting over pursing an M&A deal.”
Bellisario added that Accor historically has been more transactional than IHG, so there’s no major surprise that Accor is the one pursuing the potential combination. “However, IHG’s market cap is larger and Accor’s stock has been a relative underperformer this year, both of which make the math tougher to pencil,” he said.