Corporate Finance, ACCOR

Marina B.

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Corporate Finance, ACCOR

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1. Describe in what business Accor operates.
Accor is one of the largest French multinational hotel chain corporations. This company
which is part of the CAC 40 index, has its main business specialized in running hotels and
restaurants and specialized services. Accor possess more than 4,000 hotels worldwide, including
luxurious brands as Sofitel, Novotel, Mercure, Ibis, or Etap and Formule 1 and many other low –
range hotel as Motel 6 in USA and Canada. Accor has also developed services related to hotels
and restaurants as “Ticket Restaurant”, and also have casinos, or travel agencies.
This European leader in tourism operates in more than 100 countries thanks to 170,417
employees. Its hotels start from upscale as Sofitel, to mid-scale as Mercure and to budget hotels
as Etap. Accor covers the entire range of hotels chain and owns 450 641 rooms all over the
world, for every budget.
Accor realizes mainly its turnover in Europe with 68%, 15% for North America and 10% the
rest of the world, and principally made its turnover thanks to its mid-scale and economic hotels
as Mercure. Services and other businesses represent 18%.

Sommaire

Corporate Finance Question 1
1. Describe in what business Accor operates
2. Describe in what assets Accor has invested most capital
3. Describe how profits have developed over the 2004-2006 period
4. How sensitive profits are to changes in the dollar-to-euro exchange rate, interest rates, and RevPAR.
Corporate finance Question 2
1. Why leverage may create value for a company in the presence of taxes?
2. Hypothesize whether in the year 2004, Accor had too much debt, its optimal amount of debt, or too little debt.
3. Use the wacc figures to support your argument
4. Hypothesize why Accor has started a debt-reduction program some years ago, whereas in theory debt may create value to a company
5. Hypothesize whether the capm beta of Accor's shares has gone up, remained equal or has gone down over the 2004-2006 period
Corporate finance Question 3
1. Explain what the capm beta is, and how it is calculated. Give also the formula.
2. Report the beta you have found on the Internet, and indicate where you have found it, and at what date
3. Report the Accor share data Report the CAC40 data
4. Report your own capm beta and comment the differences with the beta found on the Internet
Corporate finance Question 4
1. Why Accor would still keep the Upscale and Midscale Hotels if their profitability is so much less than the Economy Hotels?
2. What concrete actions Accor may take to increase the profitability of the upscale and midscale hotels, or alternatively explain why you believe increasing the profitability of the upscale and midscale hotels is impossible
3. What sorts of services are so profitable?
4. Why it is not an option to get rid of all hotels and provide services only?

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Extraits

[...] In case of too many debts: In 2004, Accor has many debts and had the lowest WACC in those three years. The WACC has to be lower than the ROCE in order to profitable for the stockholders, and if not investors and shareholders would not get return on their original investment. So, this is logical that if we have too much debt, the WACC would be too high, and Accor could not furnish the yield and the return on investment expected. [...]

[...] Investors firstly refer to WACC and then to ROCE to evaluate a firm. The ROCE is calculated thanks to the EBIT, the total assets and current liabilities. Then, the ROCE should always be higher than the ratio of indebtedness which means that if the company still continue to borrow money to its lenders, then the shareholders' earnings would decrease. Also the ROCE is used to understand the value that a company earn from its assets and liabilities. In other words, if a firm had a lot of assets as building or lands and gain small profits and results, then the ROCE would be small. [...]

[...] Marina BORIES SUP5 2A 10 / 16 Corporate Finance 4. Report the CAC40 data 05/01/08 For the CAC40 index, I have downloaded the daily share price also in the internet site of yahoo finance over the same period than Accor in order to have the same logical in my Excel sheet Report your own capm beta and comment the differences with the beta found on the Internet The beta value that we found thanks to the Excel sheet is On Internet, we found a beta value of The value of beta of the internet is higher than the one we found. [...]

[...] The main asset of Accor is obviously its real estate and buildings. Accor works thanks to leased fixed rents and variable rents. The international brand had also franchises all over the world. The leasing and franchise strategy is clever because it allows Accor to spread out over the years the huge cost of acquiring buildings for its hotels. The cost value of the property in the balance sheet represents which surprising low for a company which principally lives and work through its property and equipment. [...]

[...] The theorem of Modigliani-Miller is one of the main theorems of capital structure in corporate finance. The MM theorem says that if there are no taxes, no bankruptcy costs, no transaction costs in an efficient market, the value of a firm is not affected by how that firm is financed.2 In other words, it is not important if the company‘s capital was raised thanks to stock or selling debt or what is the dividend policy. Modigliani and Miller have made two propositions, one based on an environment without taxes, and another based with taxes, for two firms, one financed only by equity and the other one financed by equity and debt. [...]

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