Accor eyes IHG in mega-merger to create world's largest hotel group

A high-stakes takeover in troubled times would easily eclipse current market leader Marriott.

By David Flynn , August 21 2020
Accor eyes IHG in mega-merger to create world's largest hotel group

Eleven thousand hotels and 1.6 million rooms and a market value of $2.3 billion: that'd be the shape of the accommodation behemoth created by a merger between Accor and IHG, which reports say is under consideration albeit far from being locked down.

As with other hotel groups around the world, French-based Accor and UK-based InterContinental Hotels Group have been hit hard by a global pandemic which has decimated the travel industry on both the business and leisure fronts.

News agency Reuters now reports that Accor is considering a take-over of its British rival which would create the world’s largest hotel group, outstripping the 1.3 million rooms of  current leader Marriott – which merged with Starwood in 2016 – and the million-room footprint of Hilton.

Adding to the intrigue, French newspaper Le Figaro claims that  Accor’s management board is said to be in favour of the proposal, while Accor chairman and CEO Sebastien Bazin – who is reported to have set up an internal taskforce on the issue involving investment banks Centerview and Rothschild – is more cautious.

A statement issued by Accor said they "do not comment on market rumors."

Accor is dominant in Europe and also a strong presence in Asia, while IHG has a larger presence in the USA.

A combined company would also share some 50 brands between them, from the top-shelf portfolio of Accor's Sofitel, Raffles and Fairmont flagships to IHG's Intercontinental, Kimpton and Six Senses, among many others, through to a gamut of business, boutique, lifestyle, 'millennial', mid-market and budget-minded properties.

The prospects of an Accor-IHG merger

If a deal could be agreed, there would be an opportunity to strip out costs to help the chains navigate the current crisis and put them on a surer footing when an upturn eventually comes.

IHG operates a so-called "asset-light" business model, where it doesn’t own much property – preferring instead to franchise its brands and offer hotel-management services to the owners. Its French rival has also moved in this direction, which limits the savings from combining two big property portfolios.

Nevertheless, there are other costs that could be cut in areas such as centralized bookings, property management and the procurement of goods used by hotels.

IHG and Accor are respectively the world’s fourth- and fifth-biggest hotel operators, with clear geographical advantages to bringing them together.

The two companies are especially concentrated in the mid-market, through chains such as Accor’s Ibis and Novotel brands. These cater more to domestic travelers, in turn making them better placed to recover more quickly from the pandemic.

The problem is that the very circumstances that make a deal desirable also render it difficult to construct.

Shares in Accor have fallen 40% since before the pandemic – about twice as much as IHG stock – so Accor has suffered much more, leaving it as the smaller party and making it harder for Accor chief Bazin to initiate talks from a position of strength.

In another unhelpful development, Accor’s bonds were cut to a junk rating by Standard & Poor’s on Wednesday. And its shareholder base is complicated: China’s Jinjiang International and the Qatar Investment Authority are its two biggest investors, each owning stakes of between 11% and 12%.

A bigger concern is that negotiating a deal in the midst of a travel maelstrom is challenging.

The two sides would have to make assumptions about how quickly consumers will start returning to hotels, and when companies will be prepared to send their staff on trips again. Against this backdrop, it’s not easy to work out a fair price: both sides are at risk of being caught out.

If a deal can be done, it has some merit. Travel will recover at some point, and a more muscular group would be better placed to negotiate franchise deals with property owners and to use its combined marketing clout to scoop up more customers.

Additional reporting by Bloomberg

David

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

Qantas - Qantas Frequent Flyer

21 Jan 2014

Total posts 263

Hope it doesn’t happen, Accor are a joke compared to IHG, loyalty program and service in particular are poles apart, if Accor are allowed to impose their standards on IHG it will have a huge effect on the IHG business.

04 May 2015

Total posts 262

I was more worried the reverse would happen - IHG's loyalty program is quite rubbish compared to Accor's as far as solid benefits are concerned. Accor at least gives breakfast to some members some of the time. IHG doesn't even give it to Spires, which normally takes 75 nights a year to get.

Blending the paid Accor Plus and IHG Ambassador systems could be good though...

I agree, the paid programs of both Accor and IHG are decent, having both of those available as a single 'ALL Plus' package would be great.

Virgin Australia - Velocity Rewards

07 Dec 2014

Total posts 164

Put aside the loyalty program ... I often have felt Accor properties in general are not up to expected standards when compared to other big hotel marquees. 

And Accor seem to have a bazillion random brands as well.

ALL and IHG Rewards are both pretty second-rate, but if Accor takes over IHG you can bet it won't scrap ALL and create another new loyalty program, given that ALL is barely a year old? I honestly can't see why Accor would want to make ALL a lot better either under this arrangement, if they are the world's largest hotel chain then they probably have less reason to improve ALL beyond its current rather average state. But they could surprise us!

Please God NO!

Accor are by and large sterile places, devoid of character with the same rubber stamped, standardized formats and groaning sameness. You can see this exemplified in the decline in Fairmont quality and service since Accor took over, just waiting for the generic 3 in 1 shampoo/conditioner/bodywash dispensers to be bolted into the Fairmont showers anytime soon now. 

At least IHG has some marques that have a degree of personality.

Etihad - Etihad Guest

19 Mar 2018

Total posts 47

IHG HAD to merge with Accor, because Jinjiang, KAL Hotels and ANA all own IHG properties, and you don't wanna have those 3 in a bidding war.

I just hope both retain their paid programs in Asia Pacific. Honestly. Bonvoy and ALL doesn't make sense in our part of the world where there is so much more competition and choices. And we aren't as brand loyal to programs as the West.

Etihad - Etihad Guest

19 Mar 2018

Total posts 47

Personally, if Singapore Airlines were reading this, 

I think they need to strengthen their branding to become synonymous with accessible luxury or whatever they're trying to be. Cathay Pacific for example, distances itself from Shangri-La group and their oriental, brands. Rather, they associate themselves with East, Upper House, Collective and Langham Hotels. 

I think, they should really look into acquiring Banyan Tree, Raffles Hotels, Park Hotel to refinforce their branding. And further strengthen their UOB-Cathay United-MUFG alliance.


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