TRAVEL: HNA Flies to South America, Jin Jiang Chases Accor in France

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Bottom line: HNA’s potential bid for 2 South American airlines looks opportunistic and could succeed due to its likely willingness to overpay, while Jin Jiang’s latest attempt to boost its stake in Accor could presage a takeover bid this year or next.

HNA eyes South American airlines

Two major tourism deals are in the headlines as the new week begins, reflecting Chinese companies’ desire to capitalize on the growing number of local tourists traveling abroad. Leading the news is word that Hainan Airlines (Shanghai: 600221) parent HNA Group is in talks to purchase South American carrier Avianca, just a week after the company made another major investment in Australian carrier Virgin Australia (Sydney: VBA). (previous post) The other headline has hotel company Jin Jiang (HKEx: 2006; Shanghai: 600754) trying to slowly take control of French giant Accor (Paris: AC), with word it wants to further boost a stake that it started buying early this year.

Let’s start with HNA, which has been a global acquirer for the last few years but has recently begun to focus strongly on its core strength in the tourism industry. The company is officially state-owned, but is highly entrepreneurial due to its big distance from Beijing and base in China’s largest special economic zone on the sub-tropical tourist-friendly island of Hainan.

The latest headlines say HNA has expressed interest in buying both Colombia-based Avianca Holdings and its Brazilian asset Avianca Brasil, both controlled by Bolivian-born entrepreneur Germán Efromovich’s Synergy Group. (English article; Chinese article) The company has hired an investment bank to explore a sale of itself, and other potential bidders include US airlines United Continental (NYSE: UAL) and Delta (NYSE: DAL), the reports say.

A source previously reported that an Avianca official had flown to China to discuss a potential bid, though the airline later clarified that it is simply exploring long-term strategic cooperation and no agreements have been signed. A deal would be the second for HNA in South America, following its agreement late last year to buy 24 percent in Azul, Brazil’s third largest airline, for $450 million. The Avianca news also comes after last week’s announcement that HNA would buy 13 percent of Virgin Australia for about $113 million.

Opportunistic Buying

The 2 South American deals both seem consistent with a Chinese preference for opportunistic buying of assets in struggling markets. Brazil’s economy is currently mired in a serious recession due to weak global commodities markets, and also big political turmoil at home. Accordingly, owners of Avianca and Azul are probably looking to lower their exposure to a prolonged economic downturn by selling part or all of their airlines to a cash-rich buyer like HNA.

Meantime on the other side of the Atlantic, shares of France’s Accor, operator of the Sofitel and Novotel chains, have soared on the latest talk that Chinese global aspirant Jin Jiang wants to boost its stake in the company. (English article) Accor shares rose nearly 7 percent at the end of last week on the reports, and are also up 20 percent since January when Jin Jiang first announced its interest in a strategic tie-up.

Jin Jiang began buying Accor’s shares on the open market around the beginning of this year, and first announced its intent when its holdings crossed a 5 percent threshold that required such disclosure. Since then it has made clear that it wants to boost that stake, even though Accor doesn’t seem too enthusiastic about the alliance. Its current stake stands at 15 percent. French media are reporting it wants to boost that to 29 percent, which is just below the 30 percent limit when Jin Jiang would have to make a buyout offer for the entire company.

The 29 percent stake would be worth about $3 billion at Accor’s current price, which is large but apparently affordable for the globally-minded Jin Jiang. I’ve been saying all along that Accor seems quite reluctant about this tie-up, especially because it already has its own major Chinese tie-up with Jin Jiang rival China Lodging (Nasdaq: HTHT). But Accor also seems powerless to stop Jin Jiang from buying its shares, and it does appear the Chinese company could be quietly preparing for an eventual takeover bid.

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