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Tokyo Group to Buy Hotel Chain for $2.27 Billion : British Owner Accepts Seibu Saison's Cash Offer for Inter-Continental

October 01, 1988|JONATHAN PETERSON | Times Staff Writer

A giant Tokyo conglomerate Friday agreed to buy the worldwide Inter-Continental Hotel group for $2.27 billion, transferring ownership of some of the world's most famous luxury hotels from the British to the Japanese.

The purchase by the Seibu Saison Group includes the Mark Hopkins in San Francisco, the May Fair in London and part ownership of the Willard in Washington. Grand Metropolitan PLC, the British firm that owns Inter-Continental, announced the sale after agreement was reached in Tokyo.

"We are delighted with this transaction," said Ian A. Martin, a U.S. executive with Grand Metropolitan, the hotels' parent company, which produces Smirnoff vodka, Bailey's Irish Cream and has various other holdings. He noted that Grand Metropolitan and Seibu Saison are considering joint ventures in retail, food, real estate and other areas.

In purchasing the hotel group, Seibu Saison gains ownership interests in 17 hotels, including those mentioned, and will become operator of 81 others on several continents. Grand Metropolitan put it up for sale in early August, sparking a contest whose participants reportedly included an alliance between Marriott Corp. and Robert M. Bass Group.

Paying Cash

"By the time we were negotiating, we were the favored buyer," said Joel Gardner, executive director of Peers & Co., a New York merchant bank that represented Seibu Saison in the deal. "Who else they considered serious, I don't know."

Seibu Saison, which is paying cash for the hotels, was backed financially by Tobishima Construction Co. "They (Tobishima) are a financing partner," said Steve Oto, a partner in the Touche Rosse & Co. accounting firm in Los Angeles. "I would think it's close to 50%."

Seibu Saison is run by Seiji Tsutsumi, an international businessman who is an art patron, poet and novelist. Although a resident of Japan, he served as one of the original trustees of the Museum of Contemporary Art in Los Angeles.

The purchase is the most recent in a growing list of Japanese investments in leisure facilities as Japanese government officials seek to steer the country toward a more consumer-oriented economy.

"That's one of the major reasons they decided to buy these hotels--so they can expand their know-how and get aggressively into the hotel business in Japan," explained Oto.

Late last year, for example, Aoki Corp. of Japan and the Bass group agreed to buy Westin Hotels for $1.53 billion. At about the same time, Sports Shinko Co. of Osaka agreed to buy the La Costa Hotel & Spa resort in north San Diego County for $250 million.

Continues Trend

More recently, Marukin Shoji Ltd., a real estate firm, paid $52.9 million for a 49% interest in the Riviera Country Club in Pacific Palisades.

Jack R. Rodman, a managing partner in the Los Angeles accounting firm of Kenneth Leventhal & Co., said such leisure properties have grown increasingly attractive to the Japanese as the available supply of choice office buildings has dwindled. "I think you're going to see more transactions of this nature," he predicted.

In addition, the hotel acquisition continues a trend of booming investment in American facilities by the Japanese. Other major investments include Bridgestone Corp.'s $2.6-billion purchase of Firestone Tire & Rubber this year and Sony Corp.'s purchase of CBS Records in 1987.

"It's clearly the second-largest purchase--if not the largest," said Gardner, noting that some Japanese newspapers had reported that the transaction was larger than the Firestone purchase.

By some reckonings, the Japanese paid top dollar for the hotels, which last year earned a $64-million profit, according to Grand Metropolitan.

"It's just off the chart," said Joseph J. Doyle, a senior vice president at the investment firm Smith Barney, Harris Upham & Co. He said the hotels will make just $90 million this year, putting the sale price at 25 times net income.

At the same time, analysts pointed out that hotels also represent a real estate investment that looks increasingly appealing in periods--such as the present--when investors fear inflation.

No Money Problem

"There's a scarcity of luxury international hotel chains in general, and those that do exist are seldom offered for sale," said Thomas McConnell, a manager of the hotel consulting group at the accounting firm Laventhol & Horwath.

By all accounts, however, Seibu Saison can easily afford it. With annual revenues of about $22 billion, the conglomerate comprises 98 companies, including department stores, supermarkets, real estate, finance, restaurants and transportation. Its American holdings include the Yoshinoya Beef Bowl restaurants. Grand Metropolitan had 1987 sales of $9.5 billion. The hotel group accounted for 7% of the company's profits, said Mary Carroll, a company spokeswoman.

"Grand Metropolitan is anxious to develop in Asia, so the idea of an Asian partner is very attractive to us," Carroll said.

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