Accor’s delicate shareholder relations

[dropcap]A[/dropcap]fter JinJiang internationals, Accor’s largest shareholder with 12.32%, HuaZhu Hotels Group (China Lodging Group Ltd, NASDAQ: HTHT) announced its strategic investment in AccorHotels during its Q1 18 release and also indicated that they already hold 4.5% of Accor’s capital (just below the minimum reported level of 5%). HuaZhu probably started to pick up Accor’s shares from last year, unnoticed. The increased interest in the share capital will be accompanied by Board representation. In 2016, HuaZhu and Accor formalized their strategic alliance and completed their cross-shareholdings. Upon the alliance, Accor holds a 10.8% stake in HuaZhu and has a seat on HuaZhu’s Board while, in return, HuaZhu received 28% of the non-controlling equity of Accor’s Luxury and upscale hotel businesses in the Pan-China region and two seats on the Board of those businesses. HuaZhu becomes Accor’s exclusive franchisee in China, Taiwan, and Mongolia for its low-cost and mid-scale Ibis brand and also in charge of the development of the Grand Mercure and Novotel brands in those areas. The alliance has borne fruit, according to HuaZhu’s Q1 18 release, Ibis and Mercure brands achieving lfl RevPAR growth of 14.5% and 12.6% in its operating areas. There are still 132 Ibis, Ibis Styles, Mercure, Grand Mercure and Novotel hotels in HuaZhu’s current pipeline in China. On the other hand, Jinjiang is Accor’s largest shareholder which controls Accor’s main competitors in France (Hold Louvre Hotels Group: Première class, Campanile, Kyriad and Golden Tulip). Jinjiang and Huazhu both started in business with budget hotels in China, Hanting (HuaZhu’s first low-cost brand) and Jinjiang Inn (Jinjiang’s low-cost brand) fighting tooth and nail over the price and geographical expansion over several years in China. In addition, the common favor of new Co-working facility business makes this competition stiffer. A year before, Jinjiang’s increased stake in Accor had been deemed to be the disguised acquisition of HuaZhu (because of the cross-shareholdings); should we now consider HuaZhu’s increase in the share capital as a strike back to divide Jinjiang’s control power? Following the alliance, HuaZhu’s operating interest seems more in line with Accor’s management and no matter how fierce the competition between the Chinese groups, it will boost Accor’s shares. Accor will be the winning wolf.