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Published on : Friday, November 8, 2013
Analysts expect the mooted acquisition to “shake up” the three-star and four-star hotel market in SA, while also giving Marriott’s Africa growth plans a major lift.
Marriott said last night it had signed a letter of intent with Cape Town-based Protea Hospitality Holdings to acquire Protea Hotels’ brands and management business.
Protea Hotels operates or franchises 116 hotels with 10,184 rooms in South Africa and six other sub-Saharan African countries. Protea’s brands include Protea Hotel Fire & Ice, African Pride Hotels and Protea, its largest brand.
The transaction, for an undisclosed sum, would nearly double Marriott’s African footprint to more than 23,000 rooms at a time when major global chains are looking to substantially ramp up their exposure to the continent.
Marriott’s brands include Ritz-Carlton, JW Marriott, Marriott Hotels & Resorts and Bulgari Hotels & Resorts, among others.
As part of the deal, Protea Hospitality Holdings would create a property company to retain ownership of the hotels it owns, and it would enter into long-term management and lease agreements with Marriott for these hotels. Protea said yesterday it would also retain a number of minority interests in other Protea-managed hotels. The result would be that Marriott manages 46% of the rooms, franchises 40% of the rooms, and leases the remaining 14%.
Alex Kyriakidis, president of Marriott International for the Middle East and Africa, said the deal would be “the strongest way to jump-start Marriott’s footprint in Africa”. This was given that the development cycle for new African hotels “is typically long due to the challenges posed by emerging infrastructure”.
Protea Hospitality Group CEO Arthur Gillis said Protea “never actually was” on the market. But Africa’s “unrealised potential” prompted it to align itself with “a global hospitality giant such as Marriott” to realise its full potential.
Mr Gillis said the intention was for Protea’s brands and people “to remain” under the Protea group. He believed Protea was attractive to global operators given its “strong and recognisable brands in Africa”, and track record.
The parties said they planned to sign definitive agreements by year-end, while the transaction could close in the first quarter of next year. The deal is subject to a number of conditions being met.
The CEO of hospitality and property consultancy HTI Consulting, Wayne Troughton, said the biggest benefit for Marriott would be its significantly strengthened position in the South African three-star and four-star market. Further, it would enable Marriott to enter the top end of the market in key gateway cities in South Africa, “which it has been trying to do for some time”.
The mid-scale market in South Africa was dominated by strong local brands, with international operators mainly being successful with only top-end brands catering for international travellers, Mr Troughton said that this is the first time we are going to see an international player having a significant presence in the domestic market, and it’s going to shake things up for the existing operators.
Mr Troughton said the acquisition would provide a springboard into the rest of Africa for Marriott.
Local operators such as City Lodge and Tsogo Sun will have to think strategically about how they position themselves and how this will change the local landscape.