With international travel decimated by Covid-19, it’s a dark time for hoteliers. So it’s hardly surprising that Accor SA might be interested in a merger with London-listed InterContinental Hotels Group Plc, owner of the Crowne Plaza and Holiday Inn brands.

Sky bar at Novotel Bangkok Sukhumvit 20

France’s Le Figaro newspaper reported that Accor’s chief executive officer, Sebastien Bazin, considered an approach for the rival company before deciding the timing wasn’t quite right. But if a deal could be agreed, there would be an opportunity to strip out costs to help the chains navigate the current crisis. It would also put them on a surer footing when an upturn eventually comes.
IHG operates a so-called “asset-light” business model, where it doesn’t own much property — preferring instead to franchise its brands and offer hotel-management services to the owners. Its French rival has moved in this direction too, which limits the savings you’d get if you were combining two big property portfolios. 
Nevertheless, there are other costs that could be cut in areas such as centralized bookings, property management and the procurement of goods used by hotels. IHG and Accor are respectively the world’s fourth- and fifth-biggest hotel operators, and there would also be geographical advantages to bringing them together. IHG is the market leader in China and is strong in the U.S., while Accor is number one in many other regions, according to analysts at Bernstein.
The two companies are especially concentrated in the mid-market, through chains such as Accor’s Ibis and Novotel brands. These cater more to domestic travelers, so they’re better placed to recover more quickly from the pandemic.
The problem is that the very circumstances that make a deal desirable also render it difficult to construct. Shares in Accor have fallen 40% since before the pandemic — about twice as much as IHG stock. So Accor has suffered much more, leaving it as the smaller party. That makes it harder for Bazin to initiate talks from a position of strength. Based on their market values, a nil-premium merger would give IHG shareholders 57% of the combined company and Accor’s 43%.
In another unhelpful development, Accor’s bonds were cut to a junk rating by Standard & Poor’s on Wednesday. And its shareholder base is complicated: China’s Jinjiang International and the Qatar Investment Authority are its two biggest investors, each owning stakes of between 11% and 12%.
A bigger concern is that negotiating a deal in the midst of a travel maelstrom is challenging. The two sides would have to make assumptions about how quickly consumers will start returning to hotels, and when companies will be prepared to send their staff on trips again. Against this backdrop, it’s not easy to work out a fair price. Both sides are at risk of being caught out.
Still, if a deal can be done, it has some merit. Travel will recover at some point, and a more muscular group would be better placed to negotiate franchise deals with property owners and to use its combined marketing clout to snag more customers.