HOT: A BLISSFUL EXIT?

Earlier today Starwood announced that it sold its Bliss business... what does this mean for the company?

 

 

HOT announced that it signed an agreement to sell the Bliss spa business to Steiner Leisure (STNR) for $100MM.  The sales price was almost 4x the initial purchase price (we don't know how much money was invested in growing the business post-acquisition).  Starwood acquired a 95% interest in Bliss in January 2004 for $25MM.  At the time, Bliss operated three stand alone spas (two in New York and one in London) and a beauty products business with distribution through its own internet site and catalogue as well as through third party retail stores. In 2005, HOT acquired the remaining 5% interest for approximately $1MM.

 

The sales multiple was not disclosed but we're pretty sure it's dilutive, given the lower multiple typically awarded this business and the low interest rate environment.  STNR, which trades at 10x 2009E EBITDA and 15.5x 2009 EPS noted that the acquisition would be slightly accretive to 2010 earnings.  Our guess is that Bliss's EBITDA is in the $8-9MM range.  Bliss revenues are included in "Management fees, franchise fees and other income" line of the income statement and in the "Other" line in the supplemental fee schedule or as the footnote says:  Amount includes revenues from the Company's Bliss spa and product business and other miscellaneous revenue.

 

From 2005-2008, "Other" fees were $134-140MM. We would guess that the majority of these revenues or "fees" are Bliss related.  Costs and expenses from Bliss products and spas are lumped into SG&A.  As we've been writing about for sometime, a lot of the fee income HOT reports really isn't fee income at all.  This transaction is a demonstration of that. On the bright side, SG&A should come down in 2010 if the recent costs cuts are indeed "permanent" since there should be a decent amount of Bliss-related expense exiting the SG&A line.


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