CASELET: LE MERMIEN LOMBOK (INDONESIA)
You are the Managing Director of a famous investment bank, headquartered in Hong Kong with regional responsibilities. You have called on the Asia Pacific Area Head for Le Meridien Hotel Group (“Le Meridien”), a large and well-known French hotel operator and part of a larger travel and leisure group owned at this time by Air France. Le Meridien has been quite successful in Thailand with a “town & resort” or “business & pleasure” strategy. In Thailand, Le Meridien has a city hotel in downtown Bangkok and a resort hotel on the island of Phuket, one hour away by air. Business travelers who stay at the city hotel earn privileges toward staying at the resort hotel, and vice versa. This strategy has worked very well, notwithstanding fierce competition in the downtown Bangkok market (e.g., a Grand Hyatt, a Regent and an Intercontinental hotel are all within 5 minutes walking distance of Le Meridien-Bangkok).
Le Meridien proposes to pursue a similar strategy in Indonesia. It has just opened a. splendid city hotel in Jakarta. It has entered into an agreement with a medium-size local partner, the Modern Group (whose core activity is the local distribution of Fuji film, cameras and related products), to buy land and build up to 4 resort hotels on 4 different islands in Indonesia. The first resort hotel will be built on the island of Lombok, adjacent to the island of Bali and one hour by air from Jakarta.
The total project cost for the resort hotel, Le Meridien Lombok, is estimated to be US$ 18 million. Le Meridien has the need to raise a US$ 9 million 9-year term loan (in USD or Rupiah) to finance the purchase of the land and the construction of the resort hotel. So effectively, there will be 50% equity and 50% debt in the capital structure. Le Meridien is also looking to find one or more additional equity investors to invest approx. US$ 3.42 million for a 38% stake in the venture. The final ownership structure of the Joint Venture company, which will own the land and the hotel, is contemplated to be as follows:
Investor Percents SD Modem 51% 4.59 Meridien 11% 1.00 New Investors 38% 3.42
Le Meridien says it is so confident of the success of the hotel that it has committed, unusually for a hotel management company, to take a US$ 1 million equity stakes in the project.
Questions A. ASSUME you are the Asia Pacific Area Head for Le Meridien. You have flown to Paris, France to make a presentation to your Board of Directors, to convince them to approve the Le Meridien Lombok hotel project. 1. Please provide FOUR (4) persuasive arguments why the Board should approve this project. (Hint: One or more of the four reasons should be a “money” argument, for which you will need to answer Question 1 in the Financial Model, attached.) 2. In this case, the Board, of Le Meridien is being asked to invest $1 million, an unusual request for a hotel management company. Please give TWO (2) solid reasons to the Board why this investment is necessary in this case. B. NOW ASSUME you work for the investment bank offering to help the clients, Le Meridien and P.T. Modern, to raise US$9 million in debt and $3.42 million in equity to build the first 5-star hotel on Lombok island, to be managed by Le Meridien, Please answer the following questions.
- Please prepare answers to each of the Questions on the Financial Model.
- Assignment status: Already Solved By Our Experts
- (USA, AUS, UK & CA PhD. Writers)
- CLICK HERE TO GET A PROFESSIONAL WRITER TO WORK ON THIS PAPER AND OTHER SIMILAR PAPERS, GET A NON PLAGIARIZED PAPER FROM OUR EXPERTS