Host Marriott Services Corp., the Bethesda company that has blanketed airports and highway rest stops with America's favorite fast-food outlets, agreed to be purchased yesterday for $929 million in cash and debt by a European counterpart controlled by the family that runs Italian clothier Benetton.
Autogrill SpA, Europe's leading operator of travel-related concessions, will pay $15.75 per share in cash for Host Marriott Services in its bid to become one of the largest players in the industry. The deal must be approved by two-thirds of Host Marriott Services shareholders through a tender offer scheduled to begin Aug. 2.
Italy's Autogrill is paying a premium for Host Marriott Services that is nearly 62 percent over the company's Friday closing stock price of $9.75 per share. Wall Street applauded the deal, sending Host Marriott Service's stock up $5.73 to close at $15.48 in trading on the New York Stock Exchange.
Host Marriott Services has struggled to expand its dominance beyond the United States since hotelier Marriott International spun it off in 1995, analysts said. Host Marriott Services holds a 65 percent market share in the industry's U.S. airport and travel plaza segment.
Host Marriott Services operates food courts filled with highly recognizable restaurants, including Legal Sea Food, TGIFriday's and TCBY at 18 of the nation's 20 largest airports, including Ronald Reagan National and Kennedy International. Two years ago, the company began an aggressive expansion into management and operation of food courts in shopping malls and airports in Europe, Canada and the Pacific.
The deal is yet another sign of consolidation within the travel-related food services business, where companies are combining to gain greater market share and get better prices on supplies that come with buying in bulk, analysts said.
"There will continue to be pretty strong consolidation in food service," said Mario Cibelli, analyst with Robottil & Co. in New York whose asset management group has clients who own nearly 400,000 shares in Host Marriott Services. "We will be left with a couple of giants who dominate globally."
Analysts said Host Marriott Services' foray into foreign markets has been slower than anticipated as the company faced difficulty adapting to new cultures and forming joint ventures with international players.
The transaction "is good," Cibelli said. "The company's financial performance had been mediocre. The share price performance had been quite poor. It's not completely surprising that this is happening."
Upon completion of the deal, Autogrill and Host Marriott Services will manage and operate 834 food facilities in airports, rest stops, shopping malls and train stations in the United States, Europe, Australia and Asia. The combined revenue of the two companies will be $2.6 billion. Host Marriott Services generated $1.4 billion in revenue last year and $24.1 million in profit.
Host Marriott Service's 200 venues will give Autogrill a tremendous entry into the U.S. market, where Autogrill chief executive Paulo Prota said he eventually hopes to introduce some of its upscale Ciao eateries and Spizzico pizza shops. Autogrill also holds exclusive rights to franchise the Burger King name in Italy.
"Marriott has a unique capability of combining together different brands and producing strong sales per square foot," Prota said in an interview yesterday from Italy. "We think this ability is useful in combination with our proprietary brands in order to create unique products for airports and motorways."
Prota said that Autogrill's strongest segment of growth is in airports and railroad stations as formerly state-run enterprises look to contract out services.
"One of our key strategies has been expanding internationally with our branded partners," said Bill McCarten, president and chief executive of Host Marriott Services. "It is a skill that we have developed that can be of value in Europe."
McCarten will retain his positions, Autogrill said.
The company also plans no immediate layoffs of the company's 26,000 employees.
McCarten says that Host Marriott Services will retain its name for the time being, but Autogrill will have to work out a deal with owner Marriott International to continue using it.
Companies in Profile
Italy's Autogrill has agreed to buy Host Marriott Services for $929 million in cash and debt.
Business: Operates 600 snack bars and restaurants (including Spizzico and Ciao) in Italy, France, Spain and other European locations; many are at rest stops
Web site address:www.autogrill.it
Host Marriott Services
Operates toll road travel plazas and locations at shopping malls and stadiums. Among its branded concessions: Starbucks, the Body Shop, Burger King
Web site address: www.hmscorp.com
SOURCES: The companies, Bloomberg ANews, Hoover's