Accor Casinos - Don't be fooled by the name

21 November 2003

As reported by: Betting Market
Amidst the noise surrounding gambling deregulation in the UK, one name has been missing from the discussion; that of Accor. Perhaps surprising, considering that the company's portfolio consists of 76 hotels in the UK, alongside 20 casinos in Europe.

Accor is the leading hotel group in Europe and one of the largest travel, tourism and corporate services groups in the world. At present, hotels represent c75% of Accor's total profits, with corporate services accounting for 18% and casinos 6%.

Casinos

Accor currently operates twenty casinos - 16 in France; two in Switzerland; one in Belgium and one in Malta.

In December 2001, Accor Casinos formed a partnership with Colony Capital, a private US-based investment fund, to launch a friendly bid for Compagnie Européenne de Casinos. The bid valued CEC at 258 million euros; however, the pair were subsequently outbid by Groupe Partouche.

In March 2002, Accor announced that it had sold half of its casino division to Colony Capital, for around 450 million euros ($389 million). At the time, the parties announced that the deal had been conceived with the objective of creating a leading casino group in the European market;

Accor Casinos' goal is to expand its presence in an industry offering substantial return on investment. This assertive strategy will be supported by its closer partnership with Colony Capital.

Colony Capital is a private US-based investment fund specializing in real estate. Since its inception, the company has invested over US$ 8 billion, of which US$ 1.5 billion has been invested in Europe. It is one of the only US-based financial investment firms to have gained regulatory clearance to own casinos, and it has been an active investor in the gaming industry since February 1998.

In February 1998, for example, Colony acquired Harveys Casino Resorts for $420 million. The business was subsequently sold in 2001 to Harrah's Entertainment, Inc for $625 million. In Oct. 31 2000, Colony paid $140 million to acquire Resorts Atlantic City Casino from Sun International Hotels Inc.

Strategy?

As at December 31, 2002, Accor's UK portfolio consisted of; 76 hotels (9,412 rooms), comprising 1 Sofitel, 23 Novotel, 1 Mercure, 39 Ibis, 2 Etap, and 10 Formule 1. The first Sofitel hotel in the UK was opened in April 2002, with Accor spending a reputed £56m to turn a 125,000sq ft former bank into a 186-bedroom hotel.

Whilst the hotel portfolio clearly represents a significant bridgehead into the UK market for Accor, questions remain as to how the company will respond to gaming deregulation. Hilton Group, for example, a fellow hotelier, recently announced that it has plans to transform its coastal hotels in places such as Brighton, Blackpool and Bournemouth into giant casinos with roulette tables, slot machines and cabaret.

What is certain, is that with a new casino taxation system in France stifling earnings growth, Accor Casinos should be targeting newly deregulated markets, such as the UK.

The presence of Colony Capital as a major shareholder in the company, makes any potential entry strategy interesting. Will the pair be content to stick a couple of slot machines in Accor's UK hotel estate, or will they have bigger fish to fry?

Certainly, the potential exists for the pair to make a big splash. Accor has proven experience when it comes to developing large concept casinos, whilst Colony will soon have plenty of spare cash, following the impending sale of Claridges and, no doubt, the rest of the Savoy Group.

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