Doubletree Plans to Acquire Upscale Renaissance Hotels
Doubletree Corp. said Tuesday that it will acquire Renaissance Hotel Group for $850 million in its latest step to add more profitable upscale hotels and expand overseas where there is less competition.
The purchase is Doubletree’s second in two months and would add more than 140 Renaissance, Ramada and New World hotels worldwide. Doubletree would have more than 370 properties with 100,000 rooms.
Upscale hotels charge $90 and up a night, analysts say.
Doubletree, the exclusive franchiser of Doubletree Hotels, Doubletree Guest Suites and Club Hotels by Doubletree, currently, owns, leases, manages or franchises about 235 hotels in the United States, Mexico and the Caribbean.
Renaissance operates about 140 hotels, including 75 Renaissance luxury hotels, 12 New World upscale hotels and 51 Ramada mid-priced hotels in North and South America, Europe and the Asia-Pacific region.
Doubletree co-Chairmen Richard Ferris, the former head of United Airlines, and Peter Ueberroth, former Major League Baseball commissioner, have spearheaded vigorous expansion in order to compete against such hoteliers as Hilton Hotels Corp., Marriott International Inc. and ITT Corp.’s Sheraton brand.
“This makes them a top-notch competitor with the Hiltons and Marriotts of the world,” said Harry Venezia, an analyst at Raymond James & Associates.
The agreement calls for Phoenix-based Doubletree to pay $8 in cash and 0.4105 shares of its stock for Renaissance, or about $25.30 a share based on a Doubletree share price of $42.15. The purchase price includes the assumption of $70 million in debt.
Hong Kong-based Renaissance shares rose $1.375 after rising as high as $7.125 before closing at $17.75 on the New York Stock Exchange.
Shares of Doubletree fell $2.50 to close at $45 in Nasdaq trading.
Ferris and Ueberroth are pursuing a plan to raise capital to make acquisitions. The two men have served as co-chairmen since 1993, when the company was closely held.
The company, which went public in 1994, has held four stock offerings, including its initial public offering. In November, it sold 5.6 million shares at $39.25 each.
With the cash from the stock offer in November, Doubletree paid $1.2 billion for Red Lion Hotels Inc., which has 56 hotels. Renaissance and Red Lion almost double Doubletree’s hotel chain.
“They are getting some decent assets and paying a very good price” for Renaissance, said John Rohs, an analyst at Schroder Wertheim & Co.
The Renaissance transaction would still leave Doubletree in a position to expand in 1997, he said. Doubletree’s debt-to-capital ratio will be in the mid-40s, as a percentage, compared with an industry average in the mid-50s, he said.
“They have been the most aggressive brand in the U.S.,” Venezia said.
Tuesday’s acquisition announcement comes amid consolidation in the industry that some analysts expect will continue because of pressure on profit in the increasingly competitive upscale market, which is less expensive than the luxury market--hotels charging $130 and up a night--Coopers & Lybrand said.
While profits are expected to reach $11.2 billion in the hotel industry in 1996, revenue growth among upscale hotels is expected to slow to 8.1% in 1997 from 9.1% in 1996 because of a flood of new rooms, according to Coopers & Lybrand.
“The number of transactions being discussed is the greatest in 23 years that I’ve been watching the industry,” said Bjorn Hanson, head of Coopers & Lybrand’s hospitality consulting business.
It wasn’t clear whether Doubletree would replace the brand names owned by Renaissance with its own. That’s what happened with the Red Lion acquisition, although the Renaissance names may be better known around the world, Venezia said.
Renaissance is mostly a hotel-management company, meaning it runs properties without necessarily owning them. Renaissance is best known for its properties overseas, said Arthur Adler, a partner with Coopers & Lybrand. The company, however, has struggled to build a similar reputation in the U.S., he said.
The Renaissance acquisition is expected to help Doubletree’s earnings, analysts said. Venezia earlier projected Doubletree would increase profit by 25% to 30% for the next two to three years. Now, the company may manage that for the next four or five years, he said.
Renaissance had net income of $9.3 million, or 31 cents a share, in the fiscal first quarter ended Sept. 30, up 20% from the same period a year ago. Doubletree had net income in the third quarter of $8 million, or 34 cents a share, up 43% from a year ago.
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