(From left) EIH chairman P.R.S. Oberoi, joint managing directors Vikram Oberoi and Arjun Oberoi, and vice-chairman S.S. Mukherjee in Calcutta on Thursday. Picture by Kishor Roy Chowdhury

Calcutta, Aug. 20: EIH Ltd, which owns the Oberoi Grand in Calcutta, is sceptical about the possibility of a grand hotel alliance with ITC but will consider the idea if the cigarette-to-hotels conglomerate makes such a proposal.

“He has not approached us. We will look at the proposal when it is made,” said EIH chairman P.R.S. (Biki) Oberoi when asked to comment on ITC chief Y.C. Deveshwar’s recent statement that he would propose such an alliance on the strength of the group’s 14.98 per cent stake in EIH.

Deveshwar had suggested that the ownership and management of hotel properties could be split between the two entities.

S.S. Mukherjee, vice-chairman of EIH, which runs the Oberoi properties in India and abroad, said such an arrangement had never been worked out anywhere in the world.

“I have never heard of two major hotel chains joining hands, even internationally. But it is possible that one company may continue to own the properties and another manage them. We have only heard about the proposal through the media and business deals are not discussed through the media,” Mukherjee said.

Arch rival Indian Hotels had made a similar overture to the Bermuda-based Orient-Express Hotels two years ago which was rudely rebuffed.

Mukherjee said property ownership and management could be split when only one of the parties was in the hospitality business. In this case, both ITC and EIH run competing businesses that work on the same model — some properties are owned by the duo, while most are under management contract.

ITC has built up its stake in EIH over the past seven years. It hasn’t crossed the 15 per cent threshold that will automatically trigger an open offer for another 20 per cent of the EIH equity.

The Oberoi family has an almost unassailable 46.5 per cent holding in EIH.

The Tatas hold around 8 per cent in Orient-Express but do not have board representation. It has not been able to increase its stake in Orient-Express because of poison pills that the management has devised to ward off predators.

The Tatas bought a part of the Orient stake for as much as $60 a share. They are carrying a loss on the two-year-old investment with the stock ruling at $10.

ITC, on the other hand, is sitting on a handsome profit of close to Rs 600 crore on its investment in EIH.

Merging entities

A possible merger between EIH and EIH Associated Hotels may be on the cards. “We are thinking about it,” Oberoi said when asked if the idea was being considered.

EIH Associate Hotels is a joint venture between EIH and the Rajan Raheja family, with both owning 36 per cent each. In case of a merger, the Rahejas who have a well-established real estate development business, will get a foothold in EIH.

Rajan Raheja is already a board member in EIH Ltd. He joined the board shortly after ITC started building its stake in EIH — a development many had interpreted as a defence to strengthen the board in case of a hostile takeover.

Incidentally, EIH Hotels and EIH Associated Hotels carried out restructuring plans over the past two years with some of the properties transferred from EIH to EIH Associated Hotels. EIH Associated Hotels operate under the Trident brand in Agra, Bhubaneswar, and Chennai.

Project halted

Mukherjee said EIH had stopped work on a flight kitchen project in Calcutta because of the downturn and the withdrawal of several international flights from the city. It had taken a 5-acre plot on Jessore Road for the Rs 40 crore project.

The company has taken various cost-cutting measures to see it through the downturn which Oberoi described as the “worst” he had ever seen. P.R.S. Oberoi has taken a 20 per cent cut in commission, while Mukherjee and two joint managing directors — Arjun and Vikram Oberoi — have sacrificed 25 per cent each.