Creating a Global Luxury Hotel Chain

Fairmont Hotels & Resorts Inc. announced on January 30, 2006, that it had agreed to be acquired by Kingdom Hotels and Colony Capital in an all-cash transaction valued at $45 per share. The transaction is valued at $3.9 billion, including assumed debt. The purchase price represents a 28% premium over Fairmont's closing price on November 4, 2005, the last day of trading when Kingdom and Colony expressed interest in Fairmont. The combination of Fairmont and Kingdom will create a luxury global hotel chain with 120 hotels in 24 countries. Discounted cash-flow analyses, including estimated synergies and terminal value, value the firm at $43.10 per share. The net asset value of Fairmont's real estate is believed to be $46.70 per share.
-Assume the acquirer divests all of Fairmont's hotels and real estate properties but continues to manage the hotels and properties under long-term management contracts. How would you estimate the net present value of the acquisition of Fairmont to the acquirer? Explain your answer.

Question

Creating a Global Luxury Hotel Chain

Fairmont Hotels & Resorts Inc. announced on January 30, 2006, that it had agreed to be acquired by Kingdom Hotels and Colony Capital in an all-cash transaction valued at $45 per share. The transaction is valued at $3.9 billion, including assumed debt. The purchase price represents a 28% premium over Fairmont's closing price on November 4, 2005, the last day of trading when Kingdom and Colony expressed interest in Fairmont. The combination of Fairmont and Kingdom will create a luxury global hotel chain with 120 hotels in 24 countries. Discounted cash-flow analyses, including estimated synergies and terminal value, value the firm at $43.10 per share. The net asset value of Fairmont's real estate is believed to be $46.70 per share.
-Assume the acquirer divests all of Fairmont's hotels and real estate properties but continues to manage the hotels and properties under long-term management contracts. How would you estimate the net present value of the acquisition of Fairmont to the acquirer? Explain your answer.

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The Answer of Creating a Global Luxury Hotel Chain

Fairmont Hotels & Resorts Inc. announced on January 30, 2006, that it had agreed to be acquired by Kingdom Hotels and Colony Capital in an all-cash transaction valued at $45 per share. The transaction is valued at $3.9 billion, including assumed debt. The purchase price represents a 28% premium over Fairmont's closing price on November 4, 2005, the last day of trading when Kingdom and Colony expressed interest in Fairmont. The combination of Fairmont and Kingdom will create a luxury global hotel chain with 120 hotels in 24 countries. Discounted cash-flow analyses, including estimated synergies and terminal value, value the firm at $43.10 per share. The net asset value of Fairmont's real estate is believed to be $46.70 per share.
-Assume the acquirer divests all of Fairmont's hotels and real estate properties but continues to manage the hotels and properties under long-term management contracts. How would you estimate the net present value of the acquisition of Fairmont to the acquirer? Explain your answer.