Oriental Express plot thickens

The flux around OEH stock is growing by the day. With Steven Cohen’s SAC investment firms filled SC13G for 2 consecutive days, taking their holding from 5.4 to 14.5 to 22.3%. A gain of 9.1 & 8 on over two days thus making Steven Cohen funds the top holder of OEH. It also hint at possible exit of some other institutional players.



Steven Cohen Funds


22.3

Indian Hotel


10.84

Dubai Holding


8.69

BlackRock


5.2

DE Shaw


5.7



As of what it known today, top 5 holders of OEH Class-A share now own more than 50% of OEH. Among these top 5 players, 2 companies (Dubai Holding & Indian Hotel ) interested in taking over OEH, while other 3 are well known hedge fund making OEH a perfect M&A play. But, what make the situation even more interesting is the vehement & candid opposition of OEH management towards any takeover or tie-up proposals and position pill structure which it has put in place to avoid any hostile takeovers. Let us look at 4 parties (OEH Management, Hedge Fund, Dubai Holding, Indian Hotels) who hold very interesting cards of the game



Even as over the years OEH management has done excellent job of creating unparalleled brand in hospitality sector. OEH management for now seems to have been caught on the wrong footing. OEH Management refusal to come on to the table for any sort of discussions have not gone well with retail investors, while the poison pill structure created by OEH is also inviting wrath from any of the top hedge and institutional players wait to unlock the value of OEH brand.


OEH is currently trading at outlandish 51 times it current price to earnings ratio. This might make normal institution and Mutual fund investors vary. If it was not for all the M&A buzz around the stock it would have been trading at a far lower valuation. This is perfectly, why one might see exit of Mutual funds and normal investors and entry of Hedge funds like SAC and DE Shaw who believe that there might be good short term upside due to a possibility of multi party M&A processes only if they can get OEH management to get on the table.



Dubai Holdings has already indicated that it will consider offer of 60USD for OEH if any 3rd party makes a takeover bid. What make Dubai Holding a great player in the arena is its very deep pocket, by been investing arm of super rich Dubai government. With deep pockets it will not only be able to match any rivals in M&A but will also be able spend handsomely in future if required. Dubai holding might see OEH hotels as perfectly complement to its current hotel business, which are symbol of luxury and extravagance like Jumeirah Hotel.


Compared to other Indian Hotels is relatively smaller player in the game and has been rebuffed couple of times before by OEH Management for its audacious moves on seeking tie-up with OEH. Indian Hotel is one of the best managed and profitable hospitality chains across the world. Its current holding o gives them a good platform to take active part in OEH M&A. Indian Hotel is back Tata group. If other Tata group companies aspirations and killer instinct are any indicator, Indian hotel will and can match any offer from Dubai holding. And even if they losses battle for OEH, it will still allow them to make profit on its current investment in OEH (For now which is a loss making loss making deal).

Whichever way the cookie crumbles it would be a great watch and might actually give out good returns to current stock holders.