Aug. 14, 2005 - Accor, the world's biggest hotelier, is weighing the most profound overhaul of top management since founders Gerard Pelisson and Paul Dubrule opened their first Novotel in 1963. Jean-Marc Espalioux, the 53-year-old who has run the group since 1997, seems to be facing the exit.

Paris-based Accor, which has 4,000 hotels worldwide, as well as interests in casinos, travel agencies and business services, is searching for a new executive chairman to give it more zing as competition intensifies.

Shares surged last week on the speculation. Los Angeles real estate investment group Colony Capital has a chunk of Accor but the issue, say French analysts, is the risk to Accor of intensifying competition now that Starwood of the US has acquired Accor's biggest French rival, Envergure.

As an internal debate rages between directors, an overhaul of the management, chaired by Espalioux, and the supervisory board headed by Pelisson and Dubrule looks likely. All management board contracts expire in January.

The review comes five months after Colony Capital invested E1bn (£690m, $1.24bn) in Accor convertible bonds. Colony founder Thomas Barrack and his European chief executive Sebastien Bazin joined the supervisory board.

Accor's biggest rivals in its domestic French market, Envergure and Concorde, are falling into the hands of American hotelier Barry Sternlicht, after his Starwood Capital Group Global won the auction for the Taittinger family assets with a E2.86bn bid. The price would indicate Accor's core French market, which accounts for 1,325 of its hotels and more than 120,000 of its rooms, will become even more competitive.

Merrill Lynch analyst Ian Rennardson noted last month after Accor's first-half sales figures, at a prospective 19.3 times forecast 2006 earnings, that Accor's shares already attract a fancy rating.

But building and running budget and middle-market hotels is an unspectacular grind. The 6.5 percent rise to E3.64bn in group revenues in the half year to 30 June reflects the morose Continental European economies, eroding progress in North America and Asia.

Although the group maintains a low profile, Accor has an impressive portfolio of brands and Pelisson and Dubrule pretty much invented the budget chain hotel. In a European market fragmented into tens of thousands of family-run hotels of unpredictable quality, Novotel offered standard en-suite rooms, sound insulation, affordable prices and easy booking.

These attributes have been extended to the budget and premium sectors. Accor's 1,310 Ibis, Etap and Formule 1 hotels are a hit with budget travellers, achieving 71.4 percent occupancy at an average nightly price of E49.

But its middle and up-market chains, Sofitel, Novotel and Mercure, saw their average occupancy slide to 61.9 percent in the first half, after hiking average nightly charges to E94. Accor's US budget chains, Red Roof Inn and Motel 6, improved occupancy to 64.9 percent and benefited from the strong US economy, but failed to match the growth of rivals.

While pursuing an ambitious opening programme, Espalioux has been active on the deal front. Last December, he merged the casinos venture co-owned with Colony with French casinos specialist Groupe Barrière. And a year ago, Accor bought 28 percent of Club Mediterranee, the French holiday specialist.

But thanks to Europe's sluggish economies, these moves have failed to deliver an exciting growth story. Back in March, unveiling the Colony investment, Espalioux promised a new drive to release cash from property assets, taking advantage of changed tax rules for French property companies, and invest the proceeds in faster expansion.

-----

To see more of The Business, or to subscribe to the newspaper, go to http://www.thebusinessonline.com.

Copyright (c) 2005, The Business, London

Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail [email protected]. AC,