Building a global brand
Business India — November 24, 2006

Taj hotels has purchased The Ritz-Carlton Hotel, in Boston, USA, from Millennium Partners for $170 million (Rs 770 crore) this month. The Boston hotel will be the first wholly owned property by the Taj group in the US. The hotel will be renamed the Taj Boston when Indian Hotels Company (IHCL), which owns and operates Taj Hotels Resorts and Palaces, assumes management of the hotel on 11 January 2007. In October 1999, Millennium Partners obtained the Ritz franchise from Marriot for their newly developed property, Ritz-Carlton Boston Common.

Due to non-competing rights, Millennium Partners could not obtain a second Ritz flag in Boston, without owning the existing Ritz. Millennium Partners acquired the existing Ritz-Carlton Boston for $122 million and, by 2002, the hotel was renovated and refurbished for $50 million. Since, both the properties are fully functional and not too far from each other, Millennium Partners decided to sell the classical property and retain the newer, contemporary one.

Anil Goel, senior VP, finance, IHCL says, "The Taj Boston Hotel is a 100-per cent offshore subsidiary of Indian Hotels. We plan to fund the acquisition through internal cash and debt. Taj raised internal reserves primarily to fund its growth into international markets. Indian Hotels raised FCCB worth $150 million, two years ago. The Taj Hotel deal would be funded by $80 million of debt raised and $90 million internal cash reserves."

About the ROI of the deal, Goel says, "The Ritz-Carlton is already a profitable property. We believe that Boston market has huge potential and there is immense scope to increase the profitability, increase rates and occupancy levels. It is a strategic investment in the fiercely competitive international markets, which will also add a fair amount of intangible assets, such as the visibility of the Taj brand name." The management believes that "they have closed the transaction at a very attractive price, lower than most hotel transaction deal prices in the super premium luxury end of the market. " Galileo Global Advisors, a New York-based firm advised Taj on the deal.

Expanding the empire
Over the past two years, Taj hotels has added three international hotels into their fold, which takes the total tally to 17 overseas hotels. Last year, Taj hotels entered into a lease agreement to operate and manage 'Le Pierre' hotel in New York. Under the agreement, the Taj group pays an annual lease of $5 million each year for a period of 30 years. Taj also plans to invest $40 million over a period of two years to renovate the luxury hotel. In February this year, Taj acquired the 'Blue' hotel in Sydney for Australian $36 million (Rs l25 crore).

In India, they have invested in hotels in the five-star range, mid-market as well as the lower budget hotels, under the Ginger brand. However, in the international markets, they are focused solely on the high-end luxury market. The Ritz-Carlton, Boston, a 75-year-old beaux-art style hotel, is considered to be the grand dame of the city's hotels and has a commendable history behind it. From 1940 to 1975, the Ritz-Carlton Boston was the only Ritz in the US.

The Ritz clientele included celebrities, movie stars, and tycoons: Prince Charles, Winston Churchill, John F. Kennedy, Betre Davis, and Howard Hughes to name a few. Taj hotels, however, will not be retaining the brand name of their recent acquisitions and will be rechristened Taj Boston. "The addition of Ritz-Carlton to Taj hotels' growing international portfolio reiterates our commitment to establishing a significant presence for the Taj brand in key destinations across the globe," said Raymond Bickson, managing director and CEO, (IHCL).

Their spate of international acquisitions in recent years is a clear sign of their efforts to establish a prominent presence for the 'Taj' brand across the globe.