PARIS AccorHotels (ACCP.PA) has bought an initial five percent stake in Singapore's Banyan Tree Holdings (BANY.SI) as part of Accor's current strategy to strengthen its luxury hotels portfolio to give a boost to its earnings.
The move follows similar deals by AccorHotels, which is Europe's largest hotels group, in the luxury sector, such as its $2.7 billion acquisition of FRHI Holdings, which owns the Fairmont, Raffles, and Swissotel brands, and its takeover of UK serviced home rental company Onefinestay.
AccorHotels will invest 24 million Singapore dollars ($17 million) to buy a stake of 5 percent in Banyan Tree upon the conversion of a mandatory convertible bond. AccorHotels has the option to buy an additional stake of approximately 5 percent.
Luxury hotel operators can earn profit margins that are two to three times higher than those of budget hotels, and AccorHotels is hoping that expanding in this upmarket part of the industry will boost its profits, which have come under pressure due to security concerns impacting Europe.
"We are confident that our investment will create incremental value for our shareholders," said AccorHotels chief executive Sebastien Bazin in a statement, commenting on the Banyan Tree deal.
AccorHotels has more than 4,000 hotels, resorts and residences worldwide. Its luxury portfolio now comprises Raffles, Fairmont, and various Sofitel brands.
Banyan Tree Holdings has 43 hotels and resorts under the four brands of Banyan Tree, Angsana, Cassia and Dhawa, as well as 64 spas and three golf courses in 28 countries.
Accor shares were down 0.2 percent in early session trading. The stock is down by around 13 percent so far in 2016.
AccorHotels cut back the upper end of its 2016 profit target range in October after its French and Belgian operations were hit by security fears in the third quarter.
(Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta)