Hotel Online  Special Report

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Le Meridien Revs Up the Momentum
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Obtains New Long-term Partnerships with Several High-profile
Asia Pacific Hotel Owners as Recapitalisation Strategy Continues
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As the once-battered brand forges ahead with new management contracts in Asia Pacific, Steve Shellum, editor of HOTEL Asia Pacific, looks at why owners are eager to sign on the dotted line. / June 2004

As Le Meridien's competitors muse on the future of the once badly bruised brand, its Asia Pacific team is going about the business of signing up hotels. Although [at the time of writing] its eventual ownership remains in the balance, more and more hotel owners in the region are taking a close look at what the brand has to offer - and they're liking what they see.

In recent months, the team - led by Asia Pacific MD Michael Sagild and VP of development Kieron Ritchard - has probably sealed more contracts in the region than any other 5-star brand [with the possible exception of Shangri-La Hotels and Resorts, which is mainly an owner-operator].

A number of these deals are the result of new relationships with some of the highest-profile hotel owners in the region. Probably even more interesting is the fact  - and it's a telling one - that many of the new signings are with existing owners. They already know the brand inside out and - despite being presented with the usual beauty parade of hotel management companies offering sweet deals - they are confident about placing the future of their companies in the hands of Le Meridien Hotels & Resorts.

The group is in the process of being recapitalised, following the worst crisis in the history of the travel industry which brought the company to its knees with debts of more than US$2 billion. 

But, over the past two years, it has taken proactive steps to reorganise its highly leveraged balance sheet into a more appropriate capital structure to support the long-term growth of the brand.

Last December, Lehman Brothers acquired the senior debt of the company from a syndicate of banks for approximately US$1 billion. 

Starwood Hotels & Resorts subsequently acquired a piece of the debt from Lehmans - but its investment is subject to completion of due diligence. 

If the deal does go ahead, Starwood has confirmed that Le Meridien will be operated as an independent brand within its organisation. 

But HOTEL Asia Pacific understands from sources close to the negotiations that the Starwood deal may not be executed and Le Meridien may remain as an independent company. 

We have learned that Lehmans and Le Meridien are concurrently exploring a recapitalisation strategy based on Le Meridien continuing as a stand-alone company with a stronger recapitalised balance sheet.

"Lehmans has expressed to us and to others that the brand has great value, it is unique, it has survived many ups and downs and it actually has a following and a value that is very difficult to quantify to many," says Sagild. 

Whatever the eventual ownership of the brand might be, owners in Asia Pacific seem unfazed by the behind-the-scenes shenanigans. 

The company continues to enter new long-term partnerships with several high-profile hotel owners in the region who, according to Sagild, "appreciate the significant value that our brand brings".

In Asia Pacific alone, 12 new hotels are scheduled to open over the next two years under the Le Meridien brand, including Shanghai, Sheshan [near Shanghai], Singapore, Kuala Lumpur, Bangkok and Chiang Mai.

The group made a bold statement of what its brand is all about with the opening in April of Le Meridien Cyberport in Hong Kong - its first Art+Tech "designer" property in the region. 

Although this concept - dreamed up by former Le Meridien CEO Jurgen Bartels - will only be applied to certain properties, it demonstrates the group's commitment to pushing the envelope of hotel design and service. 

"This type of hotel would only fit in city centres, like Bangkok, where we would use the most contemporary Thai interior design, as opposed to the traditional excessive marble and teak," says Sagild. 

"But the concept wouldn't necessarily fit in, say, Chiang Mai." 

Much of the brand's recent growth in Asia Pacific, in fact, has been in Thailand - a hot market for every international hotel-management company. 

In April, it announced its management of the Plaza Athenee Bangkok, A Royal Meridien Hotel, which is the flagship property of leading real-estate developer TCC Property Management Company.

The group has since gone on to sign management contracts with TCC for three more new builds: the 350-room Le Meridien Bangkok, located in the Surawong district and likely to be developed as an Art+Tech [scheduled to open in Q4 2006]; the 223-room Le Meridien Angkor in Cambodia [September 2004]; and the 400-room Le Meridien Chiang Mai [Q4 2006]. 

As the ink dries on those contracts, the group's development team is already in the field again with TCC looking at other potential sites.

"Thailand is very interesting for us because the new builds and renovations taking place there cover the gamut of what Meridien offers," says Sagild.[The 12 TCC hotels that operate under its Imperial brand will not be rebranded as Meridiens.]

In China, the group is opening two hotels in 2005 - Le Royal Meridien Shanghai and Le Meridien Sheshan, both owned by the Shanghai Shimao Group. 

"We anticipate adding further hotels with Shimao in the future, and we are currently in detailed discussions with a couple of other high-profile developers in China which will also likely lead to the announcement of multiple property deals later this year," says Sagild.

"We have seen a lot of brands going into China, but we have a unique ability to get in today because we have a brand that is available, it is fresh and clearly positioned in the luxury segment with all new properties. 

"In many locations in China, the more established hotel chains are now facing geographical restrictions, or they have a brand that's too close to what everyone else is offering. 

"We have a brand that is completely different. For the bigger owners, it's a situation where they can, to an extent, look at it and say, 'We could own this brand in our markets' - and that is the attraction for them. 

"So we focus on building relationships with leading property owners and seek to build tailored solutions for them across multiple properties. 

"Ideally, we end up with a situation where we are only working for two or three owners in a market - as in Thailand, for instance.

"That way, we don't need to work with 10 different owners because we get the spread we are looking for, and the owners get a bespoke solution, genuine portfolio synergies and the type of committed management team they're looking for."

With all the negative publicity Meridien has received recently and the uncertainty surrounding the future ownership of the brand, why are owners like TCC chairman Charoen Sirivadhanabhakdi so keen to work with the group? 

"What kick-started our discussions with TCC was the fact that our brand had been associated with a highly successful hotel in Bangkok, with astounding product and marketing similarities to Hotel Plaza Athenee. 

"So we started talking, and spent a lot of time work-shopping with the owner's team on where we could add value to the hotel in terms of brand, distribution and management, even before opening up a contract or talking about fees.

"From there, it became very much a relationship-building issue - and over the 11 months of going back and forth, it became apparent to both parties that our relationship could be expanded quickly and bring real value to several new projects that TCC was developing that were all a strong fit for the Le Meridien brand.

"I think that one of our biggest sellers is that we differentiate our product offering in each and every hotel. 

"We very much encourage our owners to get directly involved in the development process - we take on board their ideas and we work with our owners to create unique selling points for each project that both parties believe in [... and we can sell]."

Another advantage for the group is its size. "We're in 56 countries worldwide with 138 hotels, and yet we are still a very small and very approachable team in terms of the way we do business," says Sagild.

"Our relationships with owners are built on the trust they place in us. 

"When an owner contacts us, he gets to speak to regional decision makers with a huge depth of experience, and we are always ready to jump on planes. 

"The whole team is very much hands-on. We are small enough for everyone to get in and do the work without layers of hierarchy. 

"We tend to work in multi-disciplinary teams so that the owner has at his disposal a team of eight or nine senior guys who listen and work with the owner's management team to create value and solve problems, rather than throw the usual set of design standards or contracts on the table and say  'take it or leave it'. 

"Above all, nobody at Meridien has a personal mortgage on any relationship or project - we just get the work done."

The fact that Le Meriden has a French heritage and image [even though it is, in fact, UK-based] is another major advantage, says Sagild. 

"The brand is still perceived as French, and that's a very good thing. 

"It's associated with prestigious brands - from handbags to perfumes - and this is an association that we strive for in our advertising and branding campaigns, underpinning our focus on the image of the brand as a luxury product rather than a price-driven commodity."

Lehmans looks at all the options

As it  works towards the finalisation of the recapitalisation process, Lehmans has explored a variety of capital structures to support the long-term growth of the Le Meridien brand. 

According to industry sources, one such business model might involve joining the brand independently within a larger multi-branded hotel company, ie Starwood. 
"While this is not the exclusive solution, it is incumbent upon us to fully explore it," says a Meridien spokesperson. 

Such an affiliation would allow the benefits of the special attributes of the Le Meridien brand, product and services and the many years of established goodwill to be retained and built upon, while availing the company of synergistic benefits for revenues and costs, which would lead to higher long-term profits.

But, as in any affiliation discussion of this nature, it is quite possible that a deal with Starwood may not be executed and Le Meridien will remain as an independent company. 

"However our ownership structure develops, the result will be a stronger, independent Le Meridien brand, preserving its unique character, either independently operated or within the Starwood portfolio of brands," says the spokesperson.

© Copyright HOTEL Asia Pacific [The latest edition of HOTEL Asia Pacific can be downloaded in PDF format from www.hotelasiapacific.com]
Contact:

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Hotel Asia Pacific
Steve Shellum
158 Wong Uk Tsuen
Yuen Long
New Territories
Hong Kong
Tel: +852 2882-7352
Fax: +852 2882-2461
http://www.hotelasiapacific.com
steve@hotelasiapacific.com

 
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