Less than the sum of its parts?

Accor will be split, if the board has its way. The move highlights some questionable corporate governance at the company.

By Jim J. Jubak Dec 16, 2009 3:26PM

Jim JubakIn a very controversial action, Accor's (ACRFF) board voted Tuesday to split the company. The issue will go to a shareholder vote between June and the end of next year.

The board's vote would split the company into two businesses: Accor Hospitality would focus on the company's hotels and Accor Services would focus on voucher and prepaid services.

Activist shareholders Colony Capital and Eurazeo, which together hold 30% of the company's shares, argued that splitting up the company would unlock value for shareholders.

The French government, which holds 7.5% of shares, argued that it was risky at a time when it was still difficult to raise capital to split the company's cash cow vouchers and services business from its capital-hungry hotel division.

I think both sides have a point. It is risky to split up the two businesses for exactly the reason that the government investment fund noted. 

But a split might light a fire under the hotel division, which has been reluctant to give up a real-estate-heavy business model (in which it preferred to own hotels) for the capital-light model adopted by other hotel chains. 

In that model, hotel companies have sold real estate and rely on partners for investment in hotel properties while the hotel company concentrates on managing hotels on a fee basis.

What concerns me isn't so much the outcome of the vote but the erosion of good corporate governance at Accor. Executive chairman Gilles Pelisson, who had initially opposed the breakup on grounds that neither business really stood alone, wound up supporting the deal proposed by Colony Capital and Eurazeo. Six company directors resigned in February, when Pelisson added the job of chairman to his role as chief executive.

Under the break up approved by the board and backed by Colony Capital and Eurazeo, Pellison would head the hotel unit if shareholders approve the breakup.

Because of my concern about governance, I'm putting Accor on review as a possible sell in my annual Dec. 31 update of my Jubak Picks 50 long-term portfolio. 

By the rules of that portfolio, I only buy and sell once a year on the anniversary of the launching of that portfolio. (You can see the whole portfolio with year-to-date returns here.)

At the time of this writing, Jim Jubak did not own or control shares of any stock mentioned in this post.




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