Orbis makes a bid for Hekon

By Karol Chlipalski

Orbis, the country's largest hotel operator, is going to make an offer early this week to purchase Hekon, a company that operates 11 hotels in Poland, according to Maciej Grelowski, president of Orbis. The purchase of Hekon will allow Orbis to broaden its focus to include the less saturated market of two-star hotels.

A merger between Orbis and Hekon has been anticipated on the market since 2000, when French hotel operator Accor, which owns 100% of Hekon, first bought shares of Orbis.

Grelowski declined to reveal the price that Orbis is ready to pay for Hekon.

"Hekon is not a public company, so all estimates concerning the price are senseless and based on false presumptions," he said.

Grelowski said that the he would sign the contract with Accor no later than June 20. Orbis' takeover of Hekon should take place in September.

Grelowski is confident about the merger's prospects for success, as Accor is one of the world's largest hotel groups with 3,800 hotels in 90 countries. The company is also the largest single shareholder in Orbis, with a 29.3% stake. In an effort to avoid competition between the two companies in which it holds stakes, the French hotel giant decided to transfer all operations to Orbis, according to an Accor official who declined to be named.

Among Accor's best-known brands are Novotel, Mercure, Ibis, Etap and Formule 1. The group's net income in 2002 amounted to E430 million.

Grelowski said that Orbis would finance the purchase of Hekon with cash as well as credit obtained from a consortium of banks headed by Credit Lyonnais. Orbis holds a cash surplus from its recent sell-offs of its non-core business assets. The company recently sold a 9% share in Autostrada Wielkopolska, an infrastructure construction company, for €14 million (zł. 61.4 million) to energy concern PKN Orlen. On May 23 the company announced that it sold its 10% stake in PolCard for €5.14 million.

At the same time as Orbis takes over Hekon, Accor is planning to increase its stake in the Polish hotel operator by purchasing another 6% of Orbis shares from the state treasury and Bank Gospodarstwa Żywnościowego.

"The negotiations are underway (and) Accor is currently performing due diligence on Orbis," an Accor representative said.

Orbis is the biggest and oldest hotel operator in the country. The company was established in the early 1920s and went public in 1997. In 2000, Accor bought a 35% stake of Orbis together with Deutsche Bank and Globe Trade Center. Individually Accor holds 29.3% of Orbis.

Today Orbis operates 55 hotels with 10,500 rooms in total, located mainly in large cities, while Gromada, the second-largest player on the market, owns less than 20 hotels. During the communist era, when Orbis was a monopolist in upscale hotels, the company was free to locate its hotels in the most attractive locations in the country's main cities. Orbis' weakness is the average age of its hotels - 30 years - and their frequent need for refurbishment.

Even though there is no major player on the domestic market that could endanger Orbis' dominant position, the company saw its market share shrink by 5%-10% last year. Apart from international giants such as Marriott, Hyatt, Granada, Sheraton and Radisson SAS, which operate only a few hotels each in Poland, domestic independent hotel operators are slowly taking away market share from Orbis.

Consequently, Orbis' market share varies from 35%-70%, depending on the city. In the highly attractive Warsaw market Orbis holds 41%, while in Katowice the company has 71%.

"Orbis once had a dominant position thanks to the fact the market was still in the Middle Ages (but) it was not the result of (Orbis') strength," Grelowski said, adding that he believes that the downward trend in market share will continue until the number of hotels here corresponds to the European norm.

According to market analysts, Orbis must decide on its strategy, as last year its average occupancy rate reached only 44%.

"The unoccupied rooms must also be heated and cleaned, which generates costs regardless of the number of visitors," said Anna Hess, an analyst at CDM Pekao.

As the high-end hotel market is almost oversaturated, Orbis has to turn to two-star or even one-star hotel clients, experts noted. According to Hess, the company should invest in lower-comfort hotels, decrease the average facility standards and look for less demanding clients.

"The fact we have chosen Accor, the world's leader in economy hotels, was an unequivocal sign that we see our future as an economy-class operator," Grelowski said.