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French Firm to Acquire Motel 6 for $1.3 Billion : Merger: The deal will create the world's largest chain of budget motels.

July 13, 1990|TOM FURLONG | TIMES STAFF WRITER

Motel 6, the popular resting spot for budget-conscious American travelers, has agreed to be acquired by the French hotel chain Accor in a $1.3-billion deal that would create the world's largest group of budget motels, the firms announced Thursday.

Though the news was not announced until well after the stock market closed, rumors of the impending deal sent Motel 6's market value soaring on the New York Stock Exchange. Motel 6, a publicly traded limited partnership, closed at a 52-week high of $19.75, up $2.625 per partnership unit.

Accor said it planned a tender offer of $22.50 for each of the publicly traded partnership units. The offer is scheduled to begin next week and, according to Accor, financing has already been arranged.

More than 50% of the units are owned by Kohlberg Kravis Roberts, the New York investment firm that spearheaded a leveraged buyout of Motel 6 in 1985. According to Wall Street sources, KKR's investors stand to more than quadruple their investment if the sale goes through.

A sale would combine one of the best-known names in American lodging with a worldwide firm that has more than 850 hotels and nearly 3,000 restaurants in 60 countries.

Accor's operations include the fast-growing Formula 1 budget hotels in Europe as well as Sofitel, its luxury chain, and Novotel and Mercure, which cater to business travelers. Accor estimates that it will earn nearly $150 million in 1990 on sales of more than $4 billion.

"It's the perfect marriage," said Burland B. East III, financial analyst for the brokerage of Bateman Eichler, Hill Richards in Los Angeles. "They (Accor) have gone out and bought an operating company, and they're going to run it. . . . This is an old-fashioned business deal."

Dallas-based Motel 6 became a success with travelers by offering rates that average about $25 a night, well below most of its competition. It is well-known for its catchy advertising slogan: "We'll leave the light on for you."

Motel 6, which has expanded rapidly in recent years, expects to have 554 motels by the end of 1990, up from 378 motels in 1985. Many are located along highways and freeways of the western United States.

The lodging firm has 140 motels in California, by far the largest concentration in the United States. Texas has 61, Arizona 24, New Mexico 17, Florida 17 and Washington 15. Most of the properties are company owned and operated.

Motel 6 was a subsidiary of City Investing until it was acquired in the leveraged buyout five years ago. In October, 1986, the new owners held an initial public offering at $13.50 a unit that raised more than $75 million.

Motel 6 has said it expects to have operating profit of $220 million in 1990 on sales of $475 million.

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