Mantra Group Ltd (ASX: MTR) has reached a binding agreement with regards to selling its shares to AccorHotels (country’s biggest hotel operator) in a $1.2 billion deal. Accor is said to acquire all MTR shares at a price of $3.96 cash per share including a potential special dividend, by way of a scheme of arrangement. Approvals from Mantra’s shareholders and Foreign Investment Review Board along with the Australian Competition and Consumer Commission and the Federal Court of Australia are pending. The group has unanimously recommended the shareholders to vote in favour of the Scheme, in the absence of a superior proposal and subject to an independent expert concluding that the Scheme is in the best interests of Mantra shareholders. The shareholders’ voting on the scheme is scheduled for February next year with conclusion of the deal expected by March. The sale seems to be at a good premium to market and can be yielding attractive outcome. Mantra shares have risen about 20% since the group indicated for talks with Accor.
 

It has been also indicated that the cash consideration represents an implied market capitalisation of A$1,182.2 million and an implied enterprise value of A$1,254.6 million for the year ended 30 June 2017, on a fully diluted basis. Further, MTR is said to have the discretion to pay shareholders a special dividend of up to a maximum of 23.5 cents per share, and this will be deducted from the $3.96 headline value. It is worth noting that the scheme is subject to limited conditions and is not subject to further financing arrangements or due diligence.

This deal is said to change the landscape of hotels in Australia with the emergence of a giant which will have over 300 hotels and 50,000 rooms. It is known that Mantra has about 127 properties in Australia, New Zealand, Indonesia and Hawaii, and operates through three main brands - Peppers, Mantra and Breakfree. The group has also acquired the Deague family’s Art Series hotel chain with over 1000 rooms for $52.5 million. Mantra’s FY17 result entailing underlying EBITDAI of $101.2m, up 12.7% on FY2016; and underlying NPAT of $47.2m, up 14.2% year-on-year, has also been robust. The group’s revenue was driven by six new property acquisitions with support from the key markets of Sydney, Melbourne, ACT, and Sunshine Coast, increase in revenue from Central Revenue & Distribution segment, improved occupancy levels, higher average room rates, an increase in the total number of rooms available and improved efficiencies in key areas of the business. Given the portfolio and ongoing efforts, AccorHotels is noted to have admired the Mantra business, both in respect of its brands and properties as well as its people and processes. The best of both companies is now said to be brought together for an enhanced experience in a growth phase of the industry.

For the deal, Highbury Partnership as financial adviser and Bake McKenzie and Hogan Lovells as legal advisers, have been retained by the group.

Looking at the current scenario, we put a “Hold” on the stock at the market price of $3.88


MTR’s New Properties (Source: Company Reports)

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