Update Accor (ACRFF.PK)

12/16/2009 1:13 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

In a very controversial vote Accor’s (ACFF.PK) board of directors voted on December 15 to split the company. The issue will go to a vote by shareholders no earlier than June 2010 and no later than the end of the year.

The board’s vote would split the company into two businesses. Accor Hospitality would focus on the company’s hotels and Accor Services would focus on voucher and pre-paid services.

Because the way this decision was reached makes me uneasy, I'm going to put Accor on review as a possible sell in my annual update of the Jubak Picks 50 portfolio.

Activist shareholders Colony Capital and Eurazeo, which together hold 30% of the company’s shares, argued that splitting up the company would unlock value for shareholders. The French government, which holds 7.5% of shares, argued that it was risky at a time when it was still difficult to raise capital to split the company’s cash cow vouchers and services business from its capital hungry hotel division.

I think both sides have a point. It is risky to split up the two businesses for exactly the reason that the government investment fund noted. But a split might light a fire under the hotel division, which has been reluctant to give up a real-estate heavy business model in which it preferred to own hotels for the capital-light model adopted by other hotel chains. In that model hotel companies have sold real estate and rely on partners for investment in hotel properties while the hotel company concentrates on managing hotels on a fee basis.

What concerns me isn’t so much the outcome of the vote but the erosion of good corporate governance at Accor. Executive chairman Gilles Pelisson, who had initially opposed the breakup on grounds that neither business really stood alone—the voucher and services business, he argued, wasn’t geographically diverse enough to stand alone since 40% of revenue came from Latin America—wound up supporting the deal proposed by Colony Capital and Eurazeo. Six company directors resigned in February when Pelisson added the job of chairman to his role as chief executive.

Under the breakup approved by the board and backed by Colony Capital and Eurazeo, Pellison would head the hotel unit if shareholders approve the breakup.

Because of my concern about governance I’m putting Accor on review as a possible sell in my annual December 31 update of my Jubak Picks 50 long-term portfolio. By the rules of that portfolio I only buy and sell once a year on the anniversary of the launching of that portfolio. (You can see the whole portfolio with returns for the year to data at http://jubakpicks.com// .)

Full disclosure: I do not own or control shares of any stock mentioned in this post.
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