Still negotiating its recapitalization with Lehman Brothers and Starwood, Le Méridien is finalizing its future financial structure. Nonetheless, the company is pursuing its expansion strategy with more than thirty hotels in the pipeline due to open by 2006
_ Robert Riley: As for the ownership, the company continues to be owned by a group of shareholders lead by Nomura Capital. On the other hand, Le Méridien has a series of debts, close to a billion pounds, primarily owned by Lehman Brothers. To make it clear, to date, Lehman Brothers doesn’t own a single share of the company. After they bought our senior debt in December, we met in January to discuss the necessary recapitalization of the company to balance the debt with more equity. At that stage, they asked us to negotiate also with Starwood to see to what extent Starwood, along with Lehman Brothers, was ready to invest in the company and to affiliate with us. And we did that. Starwood spent spent several months in due diligence of our company and said, yes indeed they were interested. And now we are in a situation where Lehman Brothers and Starwood are negotiating the deal they would make to form a new company that will recapitalize Le Méridien. At the same time, Lehman Brothers has been driving a process whereby we would refinance part of our debt and attract more investors in the company. When all theses pieces come together, we would be able to announce what the recapitalization plan will be. In the meantime, we are running the business and our people are doing a good job.HTR: What is the response to the Art+Tech concept? _ R.R.: We have opened a number of Art+tech hotels already, in Vienna, Hamburg, Minneapolis, Hong Kong, Torino, and they have been overwhelming successful. We believe there is an Art+Tech concept in our future. At the same time it is important to celebrate our diversity where we are, and in some places it might be appropriate to have a different style of hotel for the customer. What is important from a branding standpoint is not so much the physical facility or the design but the style service. We have half a dozen trainers who go out to support the consistency of that service, based on our Welcome bible. I just had a meeting yesterday to adapt this bible to the changing taste of the guests.HTR: How do you face that situation? _ R.R.: I wear two hats. I wear one hat to lead the company in our operations, to go forward and to develop our new projects, our marketing and sales. I wear the other hat to work with Lehman Brothers to finalise the recapitalization process. And I manage to keep these two sides of my activities independent to each other.HTR: Is this a long process? _ R.R.: Yes it is taking longer than we anticipated. It’s not done yet and it may not be structured exactly how we originally anticipated. We all cooperate very hard but if the structure should change, we are prepared to be flexible and pursue a different structure. I am absolutely confident that we will come up with a structure of a consensual recapitalization of the company that will make us stronger probably than we have ever been before. We know the destination but we don’t know the exact path there.HTR: How do you see the implication of Starwood in the management of the chain? _ R.R.: We will definitely continue to be an independent brand and run our business. The way I see it, is that we would plug in to the Starwood infrastructure.HTR: What is the general perception of the present owners of Le Méridien hotels regarding the deal? _ R.R.: First we own or lease 40 of our properties out of 140. I have had personal meetings with over half of our owners and they are very supportive. They have chosen us for a reason and we have done a good job in running their properties. They have taken a wait and see attitude. They understand that we are structuring the brand to remain independent. There hasn’t been any leakage in the management contracts because of the Starwood deal. Since I joined the company, we have signed seven new deals and yes we lost some contracts but not as much as I would have expected on paper. Our folks on the field are doing a great job in maintaining close relationships with the owners, customers and personnel. The owners still appreciate the continental flavour of our brand and the job we are doing.HTR: What is the exact portfolio of Le Méridien? _ R.R.: At the present time, we have 132 hotels in operation with the Le Méridien brand on the building. We keep opening new properties regularly. With all the projects already in the pipeline for the next two years, we will be close to 140 by the end of the year and over 160 by the end of 2006. Stronger than ever.HTR: An amazing result when many forecast the death of the brand… _ R.R.: It is true that last year, when the Royal Bank of Scotland was transferring the lease contracts to other operators, there was a large number of articles that lead the people to believe Le Méridien was gasping its last breath. But we’ve got through it and the business is really improving. Having Lehman Brothers, an investor in property, as our main creditor is a real benefit for us, instead of 18 commercial banks which didn’t know the hotel market.HTR: How do you benefit from the general recovery of the economy in various parts of the world? _ R.R.: As a private company we do not announce our financial results, but I can guarantee that we do benefit from the recovery. We are doing much better than last year. We are still very much concentrated in Europe, which is not coming back as fast as other areas in the world, we are facing a challenge. Fortunately, our brand is also very strong in Asia, in the Middle East and Africa. Obviously we do not have many hotels in America, there will be a large growth in the hotel industry there, we think that we are very well poised to take advantage of that. We intend to move more aggressively into the US market in the next two or three years.HTR: Since the loss of contracts with the Royal Bank of Scotland in the UK, do you intend to reinforce your presence there? _ R.R.: We still have two hotels running on Piccadilly and at Gatwick. Actually, four of five hotels leased from the Royal Bank of Scotland were of real importance to the brand; the others were more provincial hotels of less strategic value. We are quite keen to come back shortly in the major cities. We should be able to make an announcement in the next few weeks.HTR: Most of the new developments are located in emerging countries, such as Croatia, or in growing nations in the Middle-East and the Far East. Is this a deliberate strategy? _ R.R.: Without a doubt! Everyone is chasing hard in emerging countries. We have been in Eastern Europe for a long time and we have very knowledgeable people that help us to be ahead of the competition. We are opening a new hotel in Stuttgart next month. Our team in Asia is also very strong, especially in Thailand and China. Our team in the Middle East is also responsible for India where we are growing rapidly and our team in Africa and the Indian Ocean are doing well with expanding their portfolio. Our choice is to be very regionalized with teams embedded in their areas for many years.HTR: Where do you see a weakness in the whole network of Le Méridien? _ R.R.: North America. We are to put our priorities there and also we have opportunities there. We work closely with our historical New York partner, the Parker family. We just opened a new hotel in Palm Springs, a very nice historic building. In Miami, we are dealing with an interesting group, because it is a large Miami developer with a lot of south-American contacts that we could use in the future. Even though we have a more opportunistic approach to South-America as compared to other areas in the world.HTR: Do you intend to maintain your marketing alliance with Nikko Hotels? Is it really beneficial for both companies? _ R.R.: Definitely, we would never have been that strong on the Japanese market otherwise and we give them good access to a global market. I have an important meeting scheduled for the beginning of next year to even strengthen the partnership. In business today you have to remain flexible and fluid when opportunities present themselves. Finding other marketing partnership such as this one is always very interesting to look at. There is nothing on the table now, but we are open.HTR: What about hotel companies in India? _ R.R.: I know the Oberoi people and the Taj very well; they are good size companies in their own right. We have seven hotels in India, with more to come. We already are the largest foreign operator and I want Le Méridien brand to be established as such there.HTR: Do you think you can keep the “French touch” in the marketing approach of Le Méridien when the only link left is the partnership with Air France? _ R.R.: We have deep cultural ties with France and we still have a big office in Paris. We believe that we are a European brand with a French accent. We are a global company especially since we don’t any longer have so many hotels in the UK. That frees us to re-awaken ourselves to our French heritage. Our plan is to let people know that we are very proud of our French accent. We will be going back towards a stronger French association more than we have done in the past three years.
