INDIA BUSINESS WORLD - OCTOBER 2006
THE MONTH THAT WAS...

NOW, TATAS CHECK IN AT RITZ-CARLTON BOSTON

 IN A deal that will help expand its presence in the US market, Indian Hotels Co (IHCL) — which runs hotels and resorts under the Tatas' Taj brand — is buying the Boston-based Ritz-Carlton hotel for $170 million. The deal will be executed through its US subsidiary International Hotel Management Service Inc. The 79-year-old Ritz-Carlton is the longest continuously-operated hotel in the US, and is owned by Millennium Partners.

   The hotel opened for business in 1927 and was bought by Millennium Partners of New York in 1999 for $122 million. Indian Hotels owns 75 hotels and is involved in a due-diligence process for the hotel. The Tata group had acquired the management of the Pierre Hotel in Manhattan in July 2005. A home to the rich and famous for decades, it is not known under what brand the hotel would be operated after its acquisition, sources said.

   IHCL has stepped up Taj brand's international presence and is in the midst of boosting it through acquisitions in markets such as the US and Europe, and is exploring business relationships in key emerging markets. “South-east and east Asian markets are identified as potential opportunities in its overseas plans,” sources said.

   Recently, the group entered into a JV with the Hong Kong-based realty and hospitality company, the Sino group, to tap opportunities in east Asia. Taj and Sino will develop luxury as well as three- and four-star hotels in China, Vietnam and India. Besides working jointly in some of the markets, the talks could also take the shape of IHCL joining hands with Sino's sister company, Far East Organisation, for developing high-end service apartments in India, sources said.

   AFTER sealing the first major cross-border acquisition in the retail sector by acquiring UK-based Rosebys, GHCL is now scripting an even bigger deal. It is in negotiations to take over a large US-based home textile retailer in a deal, which could translate into $200 million or more. The retailer, spread across the US, is owned by a private equity fund and has revenues upwards of $1 billion.

   “Our focus is on retailing now and we are looking at various companies as targets. One of them is for a large US-based home textile chain,” said GHCL chairman Sanjay Dalmia.

   If it goes through it would not only mark one of the big cross border deals but would also give GHCL a large front-end presence for home textiles in the Western markets. GHCL had last year bought USbased textile company Dan River and had acquired UK's biggest home textile retailer Rosebys in a $40-million deal early this year.

   Typically home textile retailers work on margins of 5%. If the US chain has revenues of $1 billion, its EBITDA could be in the region of $50 million. Deals in the sector is being struck at 4-6 multiples of EBITDA which would peg the deal size in the region of $200-300 million.

   GHCL is also talking to few home textile chains in UK for the second round of expansion in the market. The company is in negotiations with two separate chains one with revenues of $150 million and the other smaller in size. These two deals could add up another $50-60 million in cumulative valuation. This is part of a new strategy for Europe. Earlier, the company was targeting few home textile retail chains outside UK and had reached advanced stage of negotiations with players in Italy, France and Germany but these did not go through for various reasons, including valuations.

   As per the new strategy GHCL is planning to consolidate its presence in UK rather than being a small player in each country in Europe. Rosebys commands a market share of about 7% in UK and if the two deals go through GHCL would have a share of about 15% of the home textile business in UK.

   The medium term plan also include entering home textile retail market in India. This could be either through Rosebys or through another retail brand and would happen next year.