International International Business

SLEEPLESS NIGHTS AT ACCOR

In a country that's short on entrepreneurs, the co-founders of France's Accor have been business heroes. Paul Dubrule and Gerard Pelisson opened a French roadside motel in 1967--and then built a company with the most hotel rooms in the world: 252,887 rooms in 65 countries. It embraces Novotel, Ibis, Motel 6, and other budget brands.

But headlong growth--a common trap for entrepreneurs--has snared Accor's co-chairmen. Pricey acquisitions, led by the purchase of Motel 6 in 1990, have pushed debt up and earnings down. Accor stock, at $119, has plunged 42% from its 1990 peak. Now, its founders face asset sales and a strategy makeover to get profits growing again.

DISNEY SAVIOR. For starters, Accor's bosses are likely to sell their lone entry in the luxury market, Sofitel. After losing a recent bidding war for Meridien Hotels Inc., Air France's upscale chain, Sofitel is too small to prosper on its own. Dubrule and Pelisson would also like to dump weak units, such as Europcar International, a profitless 50-50 car-rental joint venture with Volkswagen. And they plan to drop their longtime golden rule of owning properties outright. Instead, they'll manage future hotels and restaurants for outside owners, as do many American chains.

To crown this restructuring, they want to sign up a deep-pocketed ally: Saudi Prince Al-Walid bin Talal. He helped rescue Euro Disneyland last spring and was to finance Accor's Meridien takeover. The prince is a possible buyer for a 12.4% Accor stake, worth $368 million, that France's Compagnie de Suez may be willing to sell. Suez, Accor's biggest shareholder, recently considered boosting its holding to 20% but backed out when Accor's co-chairmen refused to let the investment firm pick their successor and play a bigger strategy role. If Al-Walid doesn't want Suez' shares, he might buy into Sofitel.

Rebuilding a tarnished Accor could be the final challenge for its chastened founders. Dubrule, 60, and Pelisson, 62, plan to retire in 1997. They vow to leave a worthy legacy. Net income for 1994 will be flat, after Accor's first-ever loss: $52 million in the year's first half. But in 1995, says Pelisson, profits will start growing again. The period leading to his departure "will be like 1984 to 1990," he says, when profits soared 20% a year or more. In his last year in power, Pelisson aims for earnings of $290 million to $330 million--more than double last year's $120 million.

Analysts are sharply divided on Accor's turnaround plans. To cut debt of $4.3 billion--1.5 times equity--Dubrule and Pelisson have a list of nearly $1 billion in salable assets. They plan to sell about half this package by the end of 1995. As a result, "I'm very bullish on Accor," says Edouard de Boisgelin of Merrill Lynch in London. Others sure aren't. Debt will still be too high, and Accor's two big acquisitions of the 1990s are performing poorly, complains Michael Woodcock of Nikko Securities Co.

Pelisson admits the $1.3 billion paid for Motel 6 was steep. Since then, he and Dubrule have pumped in an additional $1.4 billion to refurbish and expand this no-frills chain. But occupancy rates tumbled during the U.S. recession and are recovering slowly. Although the chain is profitable, its 6% return on capital is far below the 10% or more at Accor's European units. Pelisson thinks he can boost the payoff to 9% in two years, as overcapacity in American hotels subsides and room rates rise.

"BENEVOLENT DICTATORS." The 1991 takeover of Belgium's Compagnie Internationale des Wagons-Lits has also hurt profits, partly because a Belgian court ordered Accor to pay 25% more than the planned $785 million, to compensate small shareholders. Wagons-Lits brought Accor more hotels--which it has integrated only slowly--plus Europcar and travel agencies. Last March, Accor put the travel agencies in a joint venture with Carlson Travel Group of the U.S. Analysts applaud that move.

Some critics think Accor has simply stayed entrepreneurial too long. Its co-chairmen are "benevolent dictators," says one analyst. Last month, they spread power by putting vice-presidents in charge of different sectors. The new hotel boss, Sven Boinet, leads the pack in the race to become chairman in 1997. Dubrule and Pelisson aim to hand their successor--whoever that may be--a revitalized company that once again does France proud.Stewart Toy in Paris