(This Nov. 4 story corrects final paragraph to make clear seller is El Chiaty and removes reference to Travco)
FRANKFURT (Reuters) - China’s Huazhu Group (HTHT.O) is buying the Steigenberger hotels as it seeks to extend its global reach with the addition of one of Germany’s most well-known upmarket chains.
Huazhu, already the world’s fifth-largest hotel group by market capitalisation, is paying 700 million euros ($781 million) in cash for Steigenberger parent Deutsche Hospitality.
That values Deutsche Hospitality, whose brands include MAXX by Steigenberger, Jaz in the City, IntercityHotels and Zleep at 17-18 times its 2019 expected earnings before interest, tax, depreciation and amortization or at less than 10 times expected 2022 core earnings.
Peers such as Marriott (MAR.O), Hilton (HLT.N), Accor (ACCP.PA), InterContinental (IHG.L) and Hyatt (H.N) trade at 11-14 times their expected core earnings over the next twelve months, while China International Travel (601888.SS) and smaller peer Huazhu both trade at more than 20 times.
Huazhu, based in China and listed in New York, operates hotels using a franchise model and on leased properties, opens 1,000 hotels each year. The acquisition will add to its more than 5,000 hotels.
Deutsche Hospitality operates 118 hotels and has 36 hotels under development, with a focus on Europe. It has plans to increase that number to 250 by 2024.
“With the help of Huazhu that will go faster than 2024,” Huazhu Chief Executive Jenny Zhang told Reuters, adding that four of five Deutsche Hospitality brands will be rolled out in China.
No job cuts are planned as part of the deal, she said, adding that Huazhu does not expect to encounter any issues with antitrust regulators or German authorities overseeing foreign investments in the country.
Huazhu is buying Deutsche Hospitality from Egyptian tourism entrepreneur Hamed El Chiaty, who bought the group from the Steigenberger family in 2009. El Chiaty will stay invested in a Middle East joint venture.
Reporting by Arno Schuetze; editing by Emelia Sithole-Matarise