“History Doesn’t Repeat Itself, But It Does Rhyme.”

We were reminded of Mark Twain’s assertion when we read that the Chinese insurance group Anbang (安邦) had bought the Waldorf-Astoria hotel in New York city (Financial Times 06 Oct 2014), making it the most expensive single hotel transaction ever. Anbang has paid USD 1.95 billion to buy the historic 1,413-room hotel, which was built in 1931 and covers an entire city block. The sale price is equivalent to USD 1.4 million per room or 33x the hotel’s historic EBITDA. The seller was the Hilton hotel group (HLT:NYQ), which will retain management rights for the next hundred years.

Why did we think of Mark Twain’s words? Because twenty-five years ago, in October 1989, the Japanese group Mitsubishi paid USD 846 million to acquire 51% of the Rockefeller Group, which owned the Rockefeller Center, Radio City Music Hall and other Manhattan landmarks. Subsequent events showed that this was not a smart buy for Mitsubishi. This outcome was not surprising in view of the fact that the Rockefeller family had been dealing in Manhattan real estate since the 1880s.

Mitsubishi’s purchase was only one among many follies committed by Japanese corporations in the 1980s when, fuelled by low interest rates and high self-esteem, they bought “landmark” assets around the world and paid landmark prices for them. Readers may remember Sony’s completely incomprehensible purchase of Columbia Pictures for USD 3.4 billion in September 1989, which signalled the start of Sony’s downfall from admired tech leader to troubled conglomerate.

For those of us who have watched the sad fates of Chinese companies who bought or developed mines in Australia, the Waldorf-Astoria sale has a familiar ring to it. The Hilton group (majority owned by Blackstone) has managed the hotel since 1949 and owned it since 1972, so it is a fair bet that Hilton knows more about the asset than Anbang does. It is possible, however, that we have completely underestimated Anbang – after all, Anbang’s founder and chairman, Wu Xiaohui, is married to the granddaughter of former Chinese leader Deng Xiaoping.

They say that no one rings a bell at the top of the market, but the Waldorf-Astoria transaction may mark the high water mark for this round of Chinese companies’ global expansion.

 

Disclaimer: This report is general advice only and is issued by Millinium Capital Managers Limited, ABN 32 111 283 357, AFSL No. 284336 (“Millinium”). Investors should always consider obtaining professional advice that suits their objectives, financial situation or needs. This report may be amended, withdrawn or replaced without notice. To the extent of the law, Millinium, its officers, personnel and agents do not accept any responsibility for any loss or damage arising from reliance on this report.

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