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What will become of LVMH's 'racy' play for Belmond?

Most insiders agree French luxury giant LVMH Moët Hennessy Louis Vuitton SE is a great suitor for the luxury Belmond hotel portfolio. What LVMH will do with its US$3.2 billion acquisition, including debt, is generating some debate, however.

News broke on Friday that LVMH and its founder Bernard Arnault agreed to pay US$25 a share in cash for London-based Belmond, a 42% premium over its closing price in the U.S. on Thursday for 46 luxury hotels across 24 countries, including a London-to-Venice train line and safari camps in Botswana.

It is viewed as a timely play with consumers moving more toward experiential holidays and widely believed LVMH is just the company to infuse its highly regarded DNA into the former Orient-Express Hotels. Iconic assets that include The Copacabana Palace in Rio de Janerio, The Cipriani in Venice and Manhattan’s venerable 21 Club might be timeless, but others in the portfolio have been called "a little dusty."

LVMH Hotel Management, formed in 2010, is already responsible for running ultra-luxury Cheval Blanc hotels in locations such as Saint-Tropez and Courchevel in France, as well as resorts in the Maldives and St. Barts. LVMH’s Bvlgari brand has six hotels with developments coming in Moscow, Paris and Tokyo. It is expected LVMH and its hotel management team can add value to the Belmond portfolio by, among other things, promoting its other high-profile retail brands such as Louis Vuitton, as well as its wine and spirits businesses.

As to whether the Belmond name will go away, LVMH Chief Financial Officer Jean-Jacques Guiony reportedly said in a conference call on Friday that it was still emerging and that LVMH is committed to the name, as well as the management team and its strategy to double the portfolio by 2020. He added that LVMH has no plans to sell assets, viewing Belmond’s asset-heavy status as an advantage and opportunity to control operations and improvement plans.

Differing opinions

New about LVMH's plan to keep the Belmond name and retain all the assets raised some eyebrows, however. A prominent UK-based investor-advisor told HOTELS the deal surprised a lot of people for two reasons – the speed, which must mean LVMH had been looking at the opportunity for a while, and the “racy” price they are paying. The investor-advisor said he has looked at the deal on a number of occasions and believes LVMH is paying 30% more than any other group that was looking. “They are paying way in excess of what private equity would pay. They must be long-term players and there should be a sale-leaseback package that will be very attractive.”

The same source added that the former Orient-Express Hotels was a special company and group, but under Belmond it was becoming more obscure. And he doesn’t think LVMH will keep the Belmond brand as it’s new and doesn’t mean much to the market. “LVMH has to be the perfect partner for them. It had to be someone who could deliver the value, which is in the collection. This is what LVMH does. They create great value and they know super-luxury better than anyone.”

Filip Boyens, former CEO of Belmond and current CEO of Forbes Travel Guide, also told HOTELS on Friday that the deal was the best thing that could have happened to Belmond. "LVMH is a small company and many Belmond properties should fall in perfectly with Chevel Blanc and Bulgari," he said. "I would be surprised if they keep the Belmond brand and I wouldn’t be surprised if they offload at least a third of the properties, starting with the hotels in Asia."

Boyens also said he thought the creme of the Belmond portfolio, those hotels in Italy, would fit well with the Chevel Blanc brand. "All in all, it couldn't have gone better with the LVMH philosophy and its appetite for luxury. Otherwise, if it had been a big brand acquiring Belmond it would have been a blood bath."

Also commenting on the deal was former Belmond regional managing director in charge of hotels in North America, Mexico, the Caribbean and Brazil, Ali Kasikci, who said, “It [Belmond] is not broadly viewed as a true player in the luxury space when compared to the likes of pedigree brands like Rosewood, Peninsula, Four Seasons, etc. With LVMH’s luxury DNA, its database and resources they can make them a luxury hotel company. Some properties are in great locations that require someone like LVMH to make them true luxury.”

Kasikci, currently strategic advisor to developer Rick Caruso, who is building the luxury Miramar resort in Montecito near Santa Barbara, California, added, “LVMH has the management that understands luxury and has the luxury DNA that Belmond didn’t have. They can pick and choose which assets to position as true luxury. The rest they will likely sell or reband.”

The deal comes four months after Belmond hired Goldman Sachs Group and JPMorgan Chase & Co. for a strategic review. LVMH reportedly beat out rumored bidders KSL Capital Partners, Blackstone Group, KKR & Co. and Ashkenazy Acquisition Corp. The transaction is expected to complete in the first half of 2019.

Through September, Belmond reported adjusted earnings before interest, tax, depreciation and amortisation of US$140 million from revenues of US$572 million.

In a statement, Arnault, chairman and CEO of LVMH, said, “Belmond delivers unique experiences to discerning travelers and owns a number of exceptional assets in the most desirable destinations. Its heritage, its innovative services, its excellence in execution and its entrepreneurship resonates well with the values of the Group and is complementary to our own Cheval Blanc maisons and the Bvlgari hotels activities. This acquisition will significantly increase LVMH’s presence in the ultimate hospitality world.”

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