1

of

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TAJ HOTELS TAKE

S

AIM AT NORTH AMERICA

Robert Hogan, College of Charleston

John Crotts, College of Charleston

CASE DESCRIPTION

The primary subject matter of this case is

ratio

analysis on two potential acquisition

targets being considered by Taj Hotels. The case has a difficulty level of t

hree

and is therefore

appropriate for junior level students. The case was crafted with management or hospitality

management courses in mind

but given the pervasive use of ratio analysis throughout the

business community this case is appropriate for a broad range

of courses including finance and

accounting. The case is designed to be taught during one, 75 minute class and we expect

students w

ill need at least two hours of preparation time outside of the classroom.

CASE SYNOPSIS

This case focuses on using ratio analysis to bring the student to a decision point, namely,

which acquisition target is the best choice for Taj Hotels

.

The case inclu

des background

information on Taj and both acquisition targets, as well as financial data and a detailed

description and calculation instructions for

eighteen

different ratios.

NOTE: This case is based on real

-

life facts, but all of the

financials

provide

d are

completely fictionalized.

As a result the case was developed as a class exercise and should not be

used as a source of primary data or illustration of effective or ineffective management.

CASE BODY

Heather Talati stared

contemplatively from

her

office at the corporate office of Taj

Hotels, Resorts

,

and Palaces

in Mumbai, India. It was October 6, 2014 and in three days she

is

scheduled to

meet

with

Rakesh Sarna, Taj's Managing Director and CEO, to present her

evaluation of two expansion opportuni

ties in North America. Taj

exited North America in the

late

1990's

but strategically re

-

entered the market seven years later focused on the luxury sector

in the gateway cities of Boston, New York, and San Francisco.

With complete backing from the

Tata Gr

oup conglomerate,

Taj Hotels, Resorts

,

and Palace

is perfectly

poised

for

expan

sion

through the purchase of a privately owned hotel/resort group.

Heather knew that a careful analysis of Taj's options would be expected and hopefully

rewarded. She and her h

usband Shyam desired to return to the US

,

and

the

expansion of Taj's

US holdings could create opportunities for

both of them

. The company's operating income was

$73 million on $310 million

in sales

making it one of the more profita

ble divisions of the T

at

a

G

roup

(http://www.tata.com/article/inside/Financials

-

of

-

Tata

-

companies)

.

Two

expansion

options seem promising. The first was Belmond Hotels (formerly Orient

Express) whose North American properties included six (6) hotels and resorts it both owned and

operated in South Carolina, Maryland, California, St. Martin

,

and Mexico.

The second

option

is

Salamander Hotels, Resorts

,

and Spas who

se

five (5) properties

are

located

in

Washington, DC,

2

of

13

North Carolina

,

and Florida. Initial appraisals of the real estate of both companies indicated

Belmond and Salamander were similarly valued on a room key (e.g., guest room) basis. Belmond

has a total of 715 guest rooms while Salamander is larger at 1,378.

Heather was a

lso informed

that the strategic locations of both options were equally valued since Taj would continue to look

for other companies to acquire to balance out its North American holdings.

Heather retrieved

from her bookshelf the textbook she used

during

her

MBA

coursework

titled

"

Valuation

for

Hotel Investor

s

"

.

History of the Taj Hotel Group

Established in 1904, Taj Hotels is one of Asia's largest and finest groups, compris

ed of

108 hotels in 63 locations across India with an additional 17 international ho

tels in the Maldives,

Malaysia, Australia, UK, USA, Bhutan, Sri Lan