Formosa International Hotels Corporation
Buying Regent, Going Global
At long last, Taiwan's FIHC has acquired the Regent brand. Chairman Steven Pan reveals the strategy he used to close the US$56 million deal, and his company's global ambitions.
Buying Regent, Going GlobalBy Yueh-lin Ma
From CommonWealth Magazine (vol. 446 )
"We were ready, but lacked a good opportunity, and now we got one!" This is how Steven Pan, chairman of Formosa International Hotels Corporation (FIHC), describes his feelings after bagging the deal for the acquisition of the Regent luxury hotel business from privately held Carlson Hospitality Group and the Rezidor Hotel Group AB.
Meeting with CommonWealth Magazine for an exclusive interview at the business club on the 19th floor of the Grand Formosa Regent Hotel in Taipei, which is run by FIHC, Pan can't help beaming with joy. A dozen international hotel business groups were scrambling to get their hands on the Regent brand.
After half a year of bidding, negotiation, persuasion and bargaining, FIHC had made it into the final round. In the end it crowded out Marriott International, the world's third largest hotelier, and the Mandarin Oriental Hotel Group, famous for its first-class hotels in Asia.
Another four months of negotiations followed, held across three continents – Asia, Europe, and North America. The talks involved countless telephone conferences at 3 a.m. Taipei time and the close scrutiny of a contract more than 1,000 pages long.
Eventually, FIHC bought the global Regent brand and franchise for US$56 million. The deal includes the sale of the global Regent brand and all associated concessions, the hotel management and lease contracts for all properties in operation and under development, and the Regent Seven Seas Cruises concession.
After pulling off this coup, Pan has successfully gained a global presence. He wants to prove that Taiwan can do more than just "import" the management model of famous brand hotels and follow in the footsteps of others. He believes that Taiwan can gain a more prominent position in the global hospitality industry by setting trends itself.
"This deal is a great boost for all our employees," FIHC CEO Amy Hsueh affirmed as soon as she joined the interview.
Over the past year FIHC has been making efforts to create a platform to diversify its operations and train management personnel, in preparation for transferring its services to other ventures. FIHC, which marks its 20th anniversary this year, could not have gotten a better birthday present than this unprecedented acquisition – never before has a domestic Taiwanese hotelier bought an international brand.
Financial Crisis Creates Acquisition Opportunities
Two years ago Pan, optimistic about the Greater China market, boldly declared that FIHC was planning to open 2o hotels of various different classes throughout Taiwan, Hong Kong and China under the brand "Silks" in the Greater China area within three years. But the financial crisis undermined his expansion plans when several joint ventures ground to a halt. Yet the financial crisis also had its bright side for Pan. Because the luxury five-star hotel industry took a severe hit, the Carlson Hospitality Group, which owns Radisson, the world's largest four-star hotel chain, among others, wanted to dispose of its Regent luxury brand.
"What they see now is that the United States is on the decline, whereas we see China's growth. We have different standpoints," Pan says. For Pan, the news that the Regent brand was up for sale was like a gift from heaven that fell into his lap. "Having the Regent brand gives us wings. We already have all the other basic building blocks such as hotels, restaurants, luxury property management, and luxury shopping. The only thing we lacked was a brand. FIHC has made a name for itself in Taiwan, but internationally we are nothing. As a global forty-year-old brand, Regent fills exactly that void," Pan explains.
Yet wanting to buy does not necessarily mean that the seller will pick you as the buyer.
When FIHC built its flagship hotel in Taipei two decades ago, an investment and management consulting contract was signed with Regent International Hotels, and the hotel opened under the name "Regent Taipei." It changed its name to Grand Formosa Regent Taipei only in 1992. "The most important point is that we are the old Regent and therefore understand how to perpetuate the brand spirit. On top of that, we have been one of the most successfully managed Regent hotels for the past decade. When it comes to ranking, profits or reputation, we've always come in first or second," Pan says with pride.
Of course things were not as easy as Pan makes them sound. Taiwan is not exactly a heavyweight in the international hotel industry. And while Pan, at a net worth of US$650 million, has made it onto Forbes Asia magazine's list of Asia's richest people, he was unknown to the Carlson Group. The deal only went ahead after the Carlson Group had used various avenues to get a clearer picture of FIHC and Pan.
Since the acquisition includes the brand, trademarks and concessions, it meant buying out 17 management contracts. "It was as complex as doing 17 acquisitions at the same time. You need to fight over every single word. For the confidentiality clauses alone we needed a week of talks," says Pan, decrying Taiwan's lack of experience with international acquisitions. To cite an example, the Regent trademark is registered in 98 countries with some 400 registrations. "If you don't do the right thing when buying and protecting the trademarks in different locations, you'll find that in the end you won't be able to use the brand that you bought," Pan observes.
Fortunately, Pan had previous experience closing a lot of property deals in the United States. "Luckily my English-language ability is not bad, or else I would be cheated badly," Pan says, laughing out loud, before suddenly turning serious again. Pan points out that brand management involves intangible assets. "That's where the power of the knowledge economy comes from. But Taiwan actually still needs to learn a lot in that regard," he warns.
FIHC relied on its performance over the past ten years to buy the Regent brand. Last year the company's revenue grew only slightly, but earnings per share reached NT$9.6. When evaluating FIHC's entrepreneurial style, industry peers often describe the company as being "very active, ambitious, and flexible in allocating resources." While following a diversification strategy, all business areas are clearly delineated, and usually the company manages to get a foothold in any new market it enters.
Business Strategy: ‘Light on Assets'
In 2002 Pan for the first time announced a capital decrease to pay cash back to shareholders. His move sent shockwaves through Taiwan's hotel businesses, which have always been keen on owning the property that they manage. But Pan decided very early to adopt the business model of international hotel groups – managing hotels rather than owning them, thus avoiding tying up capital.
FIHC has been successful in Taiwan because the company does not define itself simply as hotelier, but follows a strategy of "completely delving into the life of high society," becoming a sort of lifestyle advisor for its target customer groups by providing them with the necessary service know-how.
"In the future hotel management will definitely follow a mixed-use model," Pan explains. Building hotels requires large amounts of capital, but the payoff period is long and difficult. Building a lasting and stable management structure is a challenge faced by hoteliers around the world. Therefore, hotels in the future are bound to be combined with luxury housing and boutique shopping to reduce financial pressures.
The first step that FIHC has taken toward realizing its mixed-use concept is branching out into the management of full service luxury apartments. Two years ago FIHC joined hands with Shin Kong Insurance, the owner of the upscale Jaspervilla Xinyi apartment towers, becoming the first five-star hotel in Taiwan to manage full-service luxury apartments.
In November last year FIHC took a leap across the Taiwan Strait to cooperate with the owners of another glitzy residential property, the Tomson Riviera Lujiazui Point on the Shanghai Bund. FIHC provides private housekeeping, concierge and butler services there.
FIHC's tactical marketing and its ability to make itself the focus of attention in the hospitality and property markets have always been seen as the company's outstanding strengths. "They pay close attention to changes in the market. They have a strong ability to respond and to execute. Their team reacts very quickly," an industry insider observes.
"We don't have time to wait for setbacks, because we react right away. I think it's because our corporate culture is to make everyone use their brains to think up new ideas. Our chairman encourages people to speak their minds," CEO Hsueh reveals.
Strong Need for International Talent Development
Over the past decade FIHC has used Taiwan as a testing ground for new strategies, from restaurants to luxury apartment management to luxury shopping, training personnel and also experimenting with different business models. With the acquisition of the Regent brand, FIHC has turned its attention to exporting consulting teams, without a doubt the biggest challenge for the company.
Faced with an enormous need to increase the company's talent pool, Pan has already given out orders to "quickly promote personnel and attract new blood." Given that FIHC is currently building ten hotels around the globe, it already has a strong demand for property development personnel and design talent. "On that front we need international talent. Therefore, we will build on the management team of the Grand Formosa Regent Hotel Taipei and reinforce it with property development talent that we recruit internationally. After the news got out that we bought the Regent brand, we had CVs flood in from all over the world!" Pan relays enthusiastically.
Yet, the competition for human talent has already become a competition among international metropolises. With the Regent operational headquarters based at the Grand Formosa Regent Hotel in Taipei, it will be competing with Hong Kong, Singapore, Shanghai and Tokyo for world-class talent – not an easy feat.
"The 17 Regent hotels already in operation are all waiting to see what kind of business management talent the headquarters can provide them," one industry insider observes. "The Regent brand is a very good baby, but everyone will watch whether Taiwan is able to raise it into adulthood."
Translated from the Chinese by Susanne Ganz
Formosa International Hotels Corporation
Chairman: Steven Pan
CEO: Amy Hsueh
Paid-in capital: NT$726 million
Consolidated revenue: NT$4.299 billion
After-tax net profits: NT$697 million