RADH - Radisson Hotel Group

[alwaysinvert]

This is a pretty interesting workout situation, with mysterious Chinese super-acquirer HNA Group buying Carlson Rezidor in a private transaction last year, thus getting a majority stake in Rezidor, which prompted a forced bid. The forced bid will get HNA from 50% to 70% of the ownership as soon as the pay off the sellers. That payment is slated for at the latest 29 September at the moment, but HNA has the option to delay the payment further until 3 November. The bid was 34.86 SEK (later dividend adjusted by 0.50 SEK) and the stock now trades around 30.

 

According to the takeover rules, HNA cannot make another higher bid for six months without compensating earlier sellers. To me, despite a smattering of problems with HNA, this still seems like the most likely outcome. They have closed other much larger deals this year, notwithstanding Chinese capital controls and issues of overleverage, and it would make complete sense from both an organizational and cost perspective to take Rezidor private and consolidate Carlson Rezidor fully.   

 

I did a more in-depth write-up in Swedish some time ago which can be viewed here: http://vardeinvesteraren.nu/vardeinvestering/analys-av-rezidor/.

 

Valuation-wise, I have not found another hotel operator that trades at a lower multiple (EV/EBITDA 6). In my write-up I compared it to Scandic's acquisition of Finnish hotel chain Restel earlier this year, and despite Restel being much smaller with no growth portfolio and worse EBITDA margins, it was bought out at the same P/S multiple as Rezidor trades. 

 

The stock has been left for dead with many institutional investors throwing in the towel, but I think there just may be a catalyst right around the corner in some form or another. The industry has been under heavy consolidation for a couple of years and there's no reason to doubt that will continue. Just last week, news came out about outside takeover interest in NH Hotel, which is a Spanish chain that HNA also has a big stake in. Last year NH was tipped to be combined with Rezidor by the former CEO of Rezidor. In addition, the ousted CEO of NH is the current CEO of Rezidor.

 

edit: ticker changed from REZT to RADH

[misterkrusty]

this seems interesting.  would you expect HNA to bid for the remaining 30% all at once?  what range of bid prices would you expect?

[alwaysinvert]

this seems interesting.  would you expect HNA to bid for the remaining 30% all at once?  what range of bid prices would you expect?

 

They could buy stock over the market or via private transactions, I suppose, but I don't think that will get them very far before the stock appreciates.

 

Range of bid prices is a good question. A strong majority owner doesn't tend to give a great premium, but to be able to get the remaining shares I think they would have to offer a fair bit above the last offer. I would put the private market value of Rezidor at 10-12 times EBITDA with a bid from HNA not likely to realize all of that upside. On the other hand, theoretically they should be willing to pay more for the last remaining shares.

 

Note that the stock exchange rules will soon be changed in light of the problems surrounding the bid for Rezidor and that an up to 9 month delay of the payment won't happen again.

 

http://www.di.se/nyheter/takeover-regler-revideras-efter-rezidor-och-haldex/

[alwaysinvert]

HNA SETTLES ITS MANDATORY TENDER OFFER TO THE SHAREHOLDERS OF REZIDOR

 

http://www.hnagroup.com/HNAGroupFile/HNA%20settles%20its%20mandatory%20offer%20-%20ENGLISH.pdf

[writser]

Unfortunately I missed this thread earlier. I've tried to read your blogpost with Google Translate, looks like solid research. Interesting situation. It seems logical HNA would want to buy out the remaining 30% soon to avoid the difficulties / scrutiny / costs of being a listed company in Sweden (though it is possible I guess that they remain listed for a few years). The most logical price would seem to me the same price as they offered in the previous tender offer or slightly higher. If the amount will be lower shareholders will be pissed and might not tender, if they bid much higher last year's shareholders will be pissed off (also, why should HNA voluntarily pay much more than last year?). Something in the 35-38 range seems reasonable.

 

At what percentage of ownership does a Swedish majority owner have to make a mandatory bid for all shares outstanding? Is there even such a law in Sweden? Your insights would be appreciated.

[dontdodebt]

I added quite a bit to my position after the latest news.

 

This is great news!

[alwaysinvert]

Unfortunately I missed this thread earlier. I've tried to read your blogpost with Google Translate, looks like solid research. Interesting situation. It seems logical HNA would want to buy out the remaining 30% soon to avoid the difficulties / scrutiny / costs of being a listed company in Sweden (though it is possible I guess that they remain listed for a few years). The most logical price would seem to me the same price as they offered in the previous tender offer or slightly higher. If the amount will be lower shareholders will be pissed and might not tender, if they bid much higher last year's shareholders will be pissed off (also, why should HNA voluntarily pay much more than last year?). Something in the 35-38 range seems reasonable.

 

At what percentage of ownership does a Swedish majority owner have to make a mandatory bid for all shares outstanding? Is there even such a law in Sweden? Your insights would be appreciated.

 

This bid was a mandatory bid based on exchange traded averages. HNA bought Carlson Group, which owned 50% of Rezidor and triggered a mandatory takeover bid (which sets in when one owner goes above 30%). Usually the mandatory bid is set at what you paid for the last remaining shares taking you over 30%, but the problem was the exhange did not have rules to cover situations where an owner acquired shares the backdoor way via buying a holding company. 

 

Thus, there is some suspicion that the valuation given to Rezidor in the Carlson/HNA-transaction was actually higher than the subsequent bid. We just don't know exactly, because they were never forced to reveal that due to it being a private transaction and the stock exchange rules lacking sufficient granularity to deal with it properly.

 

Former shareholders being pissed off doesn't matter. The only issue is HNA cannot pay more without compensating earlier takers of the bid in six months following the earlier bid. Naturally, such a bid won't happen for just that reason.

 

As far as I am concerned, the factors here are 1) value, 2) what price can take HNA above 90% thus triggering a squeeze-out? and 3) what is HNA willing/able to pay?

 

It is possible that your price range can take HNA above 90%, but I would lean towards a somewhat higher range. Remember that in a possible coming bid it is most probably structured to fail completely if they don't get above 90%. A mandatory bid cannot be structured that way as it must offer same term deals as the last sellers got. 

 

Of course, this sequence of events is not set in stone. It is possible that HNA has some other kind of plan.

[writser]

https://skift.com/2017/11/03/hna-group-may-want-to-sell-its-stake-in-a-spanish-hotel-company/

 

Not exactly going according to plan so far!

[alwaysinvert]

https://skift.com/2017/11/03/hna-group-may-want-to-sell-its-stake-in-a-spanish-hotel-company/

 

Not exactly going according to plan so far!

 

Yes, HNA is scrambling for funds all over:

 

http://www.reuters.com/article/hna-group-divestiture-nh-hoteles/chinas-hna-agrees-sale-and-repurchase-deal-on-shares-in-spains-nh-hotel-idUSL3N1ND5G9

https://www.bloomberg.com/news/articles/2017-11-02/hna-is-said-to-plan-highest-yielding-short-term-dollar-bond

 

Still, it is hard to square this completely with the price action in Rezidor, because if you look only at fundamental factors that would mean the company could be auctioned off instead of bought fully by HNA. I'm not even sure that is an altogether bad proposition for minority owners. Lots of uncertainty in the situation to be sure. 

[dontdodebt]

Latest news about HNA decreasing I interpret as a really bad sign.

 

Seems very far fetched to think that a bid from HNA will come from here, or what do I know?

[alwaysinvert]

Latest news about HNA decreasing I interpret as a really bad sign.

 

Seems very far fetched to think that a bid from HNA will come from here, or what do I know?

 

It's certainly not a positive for the timeline, that's for sure. Discussed this some on Twitter earlier and it is at least *possible* that there is a sale and repurchase deal like they did in NH recently behind this. Hopefully they will communicate that shortly if that is indeed the case. Otherwise we should probably expect the holding to have shrunk more by year-end.

[alwaysinvert]

Shares were not sold. My guess seems to have been correct: http://www.nasdaq.com/press-release/hna-tourism-groups-ownership-of-rezidor-20171215-00485

[dontdodebt]

Ok. "Good" sign then.

 

Big liquidty problem it seems but the hypothesis about a future bid is not as far fetched.

[alwaysinvert]

A new and pretty thorough write-up of the stock: https://backoftheenvelopeinvesting.wordpress.com/2017/12/24/rezidor-hotel-group-do-chinese-read-sun-tzu/

[alwaysinvert]

Another new write-up of the stock: http://www.yetanothervalueblog.com/2018/02/checking-into-rezidor-rezt.html

 

Also, there is apparently a VIC write-up too, which I guess you can read if you are a premium member (I'm not).

 

This stock is turning into quite the value darling. I don't know if that's a good sign or not.

[valuedontlie]

Haven't seen any of these write-ups look at the lease situation here... compared to peers, REZT seems to have much higher lease obligations both relative to EBITDAR and EV. Some serious operating leverage that could cut deep in a downturn... Just a thought.

[alwaysinvert]

Haven't seen any of these write-ups look at the lease situation here... compared to peers, REZT seems to have much higher lease obligations both relative to EBITDAR and EV. Some serious operating leverage that could cut deep in a downturn... Just a thought.

 

It is touched on in my original write-up (in Swedish). You are absolutely correct in that it makes Rezidor riskier. Although I would surmise that they have exited some of the worst contracts since the financial crisis and the growth has been in managed and franchise. The potential valley may not be as deep as earlier results would indicate. Also, they have shifted somewhat to variable leases within the category (Scandic's main model).

[whistlerbumps]

Big question is whether you believe in the turnaround plan laid out at the investor day.  If they are anywhere close to what they project, stock is a multibagger.... Carlson and Rezidor seem to be implementing the same play that Federico enacted at NHH

 

Agreed that there is significant operating leverage in the model but without a material travel recession, I think its tough to see too much downside here.

[whistlerbumps]

On the strategic plan....

 

https://skift.com/2018/02/12/carlson-rezidor-is-rebranding-itself-as-radisson-hotel-group/>

[Hielko]

Big question is whether you believe in the turnaround plan laid out at the investor day.  If they are anywhere close to what they project, stock is a multibagger.... Carlson and Rezidor seem to be implementing the same play that Federico enacted at NHH

 

Agreed that there is significant operating leverage in the model but without a material travel recession, I think its tough to see too much downside here.

Does not compute...

[valuedontlie]

I think you need to look at it like you would the regional casino players like PNK/PENN/BYD... Call it 10x EV/EBITDAR... If they can get EBITDAR back near 2015 levels of 340m EUR = 3.4bn EV less 2.85bn leases + net debt = 550m equity value or ~31-32 SEK per share... that's like 30% upside or so...

 

Huge sensitivity in EV/EBITDAR given the leverage... For ex: 10.6x multiple would make the stock a double and 9x multiple would be 50% downside...

 

I own a small warehouse/logistics business and in my world, leases = debt...

[alwaysinvert]

Possible sale of the company:

 

https://skift.com/2018/06/29/chinas-hna-looks-to-sell-radisson-hotel-group-to-pay-down-debt/

 

Ticker has changed to RADH, btw.

[Mondegreen]

Looking like a good call, up considerably on the news that HNA are looking to sell.

 

Added note, could an admin please change the subject of this thread to reflect the ticker change? (REZT > RADH)

 

Thanks,

Mondegreen

[alwaysinvert]

I'll add some info on the situation with regards to a possible sale.

 

In the event of a sale at the parent level, there *will* be a mandatory bid on the public entity and there will be a lowest allowable level set by an independent council (Aktiemarknadsnämnden). This level will take into account the valuation of RADH set in the transaction, which the bidder is obliged to provide. If that valuation is higher than the 20 day average price, that valuation is used as the lowest possible bid level.

 

 

In response to the debate generated by HNA Tourism

Group’s mandatory offer for Rezidor, the new rules introduce

new requirements in respect of the minimum price to be

offered as a result of indirect acquisitions of target shares.

Under the revised rules, the price in the mandatory bid must

not be less than the higher of (1) the 20 day average price and

(2) a price per Company B share on the basis of the portion

of the purchase price for Company A that the bidder has

allocated to the shares in Company B (i.e. on the basis of the

bidder’s categorization of the purchase price for Company A

into Company A’s stake in Company B and the other assets

of Company A). The new rules require the bidder to disclose

how it has categorized the total purchase price for Company

A into Company A’s stake in Company B and the rest of the

assets of Company A and the basis for such categorization.

 

 

My estimation is that the company is quite a bit more valuable than it was last year when the mandatory bid was set at 35 SEK. That level was widely panned as too low - not least by the BOD of Rezidor. The management of the company has improved since (there were lots of low-hanging fruit to pick, as I think we might see in the coming quarters/years) and the sector has had strong tailwinds globally, and particularly in Eastern Europe and the Middle-East.

 

The outlook for a competitive auction process seems very favorable; HNA managed to get a good price on its minority stake in NH and cash flows among possible strategic buyers are good. Something to note is that HNA seems to be very much in a hurry and they have swiftly sold assets to the tune of $15b this year already. Something is very much afoot with the company, which today's news of the death of their co-chairman may further indicate (if one is a allowed a conspiratorial suspicion).

 

A stab in the dark guess on a mandatory bid if it comes in the next 6 months or so would be 40 SEK. I obviously think the company might be worth considerably more than that, but there it is - a guess mostly for the fun of it. 

[whistlerbumps]

Sale would be a bit bittersweet given that trailing EBITDA probably far below EBITDA in 3 years... that being said if its a bidding war and we get a decent multiple then bird in hand I guess... also removes a lot of the mid-term risks (execution, recession etc)