Tata sees red after Orient-Express Hotels rebuffs its alliance offer for second time

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In September, Tata's hospitality arm, the Indian Hotels Company Limited (IHCL), which owns and manages the Taj brand of hotels and resorts, announced that it has acquired a 10 percent stake in the NYSE-listed Orient-Express Hotels (OEH) for nearly $212.5 million (Rs. 850 crore) through open market operations and expressed desire for a possible alliance with the company.

However, shortly afterwards, Paul White, president and chief executive, OEH, announced that the hotel management has not entered into strategic discussions with IHCL or any of their affiliates. White also said that the company has responded to IHCL stating that it does not wish to enter into any kind of discussion as the hotel chain intended to focus on expanding in the luxury market "as an independent company."

Susequently, Tata came out with a statement that its intention was misconstrued and it did not intend to launch any "hostile takeover" bid.

In early December, IHCL announced that it has further raised its stake to 11.5 percent through open market purchases and reiterated its intention of continuing to explore a possible alliance that "will not result in a hostile takeover."

"Our formula has been one of compatible merging rather than a hostile acquisition," Economic Times quoted Tata Group chairman, Ratan Tata, as saying. All IHCL wanted, he said, was a meeting with OEH management to discuss possible synergies, including cross-marketing, materials purchasing and luxury vacation packages.

"Despite the company's refusal to discuss Indian Hotels' proposal, Indian Hotels intends to continue to explore a possible association or strategic transaction," IHCL said in a regulatory filing.

However, in a letter dated Dec. 10 addressed to the Tata Group, White curtly said that he did not "believe that there is a strategic fit."

"We do not believe that there is a strategic fit between your predominantly domestic Indian hotel chain and our global portfolio of luxury hotels and unique travel experiences, and we do not wish to be involved in an attempt to improve the performance of your non-Indian properties," White wrote.

OEH has "no interest in pursuing the proposals" made by IHCL as "any association of our luxury brands and properties with your brands and properties would result in a reduction in the value of our brands and of our business and would likely lead to erosion in the (revenue per available room) premiums currently achieved by our properties," White wrote in his reply to IHCL.

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