Shanghai-based Home Inns & Hotels Management Inc. (HMIN) recently entered into a definitive agreement to fully acquire Motel 168 International Holdings Limited for $470 million. The purchase consideration comprises approximately $305 million in cash and 8.15 million Home Inns' ordinary shares at a price equivalent to a per-ADS price of $40.37 to be issued at the time of closure.
As a point of reference, each Nasdaq traded Home Inns' ADS represents two ordinary shares. The transaction is awaiting customary closing conditions as well as Chinese regulatory approvals and is expected to close by the fourth quarter of 2011.
The cash portion of the transaction will be financed through cash on hand in Home Inns’ balance sheet and one or more sources of new debt financing. Home Inns has received a term credit facility financing commitment for up to $300 million from Credit Suisse and JPMorgan Chase & Co. (JPM).
Motel 168 is one of the major branded economy hotel operators in China, with 144 leased-and-operated locations and 137 franchised-and-managed hotels and a total of 45,669 rooms in 81 cities. The majority of Motel 168's portfolio is operated under its namesake flagship brand.
A selected number of locations are operated or co-operated under Motel 168's Motel 268 and Yotel QQ brands. Motel 168 is a reputed brand among domestic business and leisure travelers, particularly in Shanghai and the eastern coastal regions. Motel 168 generated gross revenue of $262 million in the financial year ending December 31, 2010.
Home Inns is all set to capitalize on China's secular growth story by further increasing its presence in that country. The hotelier is planning to expand its portfolio in China from 818 hotels in 2010 to about 1,100 by the end of 2011.
We view the deal as strategically positive, since the combination will create the most geographically diverse economy hotel portfolio in China. Moreover, the deal is in sync with Home Inns' strategy to develop multi-brands. Post acquisition, the Motel 168 brand will be retained to make the most of its already-proven operational expertise.
China is expected to be the world’s largest travel destination by 2020 and the new deal will boost Home Inns’ domestic market share. Many of the company’s western peers like Starwood Hotels and Resorts Worldwide Inc. (HOT) and Marriott International Inc. (MAR) are also increasing their presence in this region.
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