According to the contract, which was signed on Aug. 7, Linstow International acquired 2,322,752 shares or a 44 percent stake from Baltic Republics Fund in Reval HG. The BRF has been an investor in Reval HG for five years. BRF has also invested in such successful Estonian companies as MicroLink, Viisnurk, Baltika and Helmes.
James Syme, fund manager of BRF, said Reval HG had one of the best track records of any company in Estonia, and it had reached the stage in its development where it would benefit from an international strategic investor.
The price of the transaction was 74 kroons ($4.3) per share. Linstow International will make the same offering to all small shareholders of Reval HG and take the company off the Tallinn Stock Exchange list. Reval HG has about 1,000 small shareholders.
The last closing price of Reval HG shares on TSE before trading was suspended on July 26 was 50 kroons ($3).
Veikko Maripuu, head of the sales and research department in the investment bank Suprema, said previous shareholders were offered a good deal.
"The price of the deal was set according to the long-run value of the company," said Maripuu. "The purchase of Reval HG shares is the first good example where a small shareholder can get a better price than the one settled on the stock exchange."
As Linstow International formerly held about 8 percent of Reval HG shares, its stake in Reval HG has risen up to 52 percent.
According to Tarmo Sumberg, supervisory board chairman at Reval HG, Linstow's decision can be viewed as a good development opportunity for the hotel group.
"It permits Linstow's real estate development know-how to unite with the hotel management and the operation experiences of Reval HG in the best possible way," said Sumberg. "Both companies have set an objective to build up a hotel chain with a strong regional trademark in the Baltics."
Sumberg is also one of the biggest shareholders in Reval HG with his company called Inn Group, which owns about 11 percent of the company's shares. He said that he was planning to keep part of his shares because the new investor wanted him to continue managing the company.
Besides 25 buildings in Norway, the Linstow group owns the biggest hotel in Latvia called Latvija and in Lithuania called Lietuva, a World Trade Center hotel project in Tallinn and half of the Park Ridzene Hotel shares in Riga.
Reval HG to run Hotel Latvija
After buying a majority holding in the Estonian hotel group, Linstow intends to start cooperation with Reval HG on developing a hotel chain in the Baltic states. Reval HG will operate all the hotels fully owned by Linstow, said Bauer-Nilsen.
As the first step, Reval HG will start a joint development of Hotel Latvija in Riga, owned by Linstow International. The 26-story hotel, one of the tallest buildings in Riga, will be reopened for guests in May 2001 after renovation as Reval Hotel Latvija.
According to preliminary plans, Linstow International intends to invest $25 million in the renovation of Hotel Latvija.
"We are currently examining the market, and it seems the World Trade Center project has to wait for better times," said Sumberg.
Bauer-Nilsen said that after the hotels Latvija and Lietuva have been renovated, they will hold about 15 percent to 20 percent of the guestrooms in Riga and Vilnius.
The five-star Park Ridzene Hotel will not become part of Reval HG, said Bauer-Nilsen, because it does not fully belong to Linstow, and it is different from the general middle-class Reval hotel.
Reval HG owns four hotels in Tallinn: two upper mid-scale, full-service hotels, Reval Hotel Olumpia and Park Hotel&Casino, a mid-scale, full-service hotel Reval Hotel Central and economy, basic-service Reval Express Hotel.
Competition is very tight
According to the hotel experts, the competition on the Tallinn hotel market is tight and this has improved the quality of hotel services and kept the prices low.
Bauer-Nilsen said Radisson SAS group is the biggest competitor to Reval HG across the Baltic states.
"But their product is different from ours. They are very good. We are for the mid-market segment," said Bauer-Nilsen.
He said the competition in the Tallinn hotel market is becoming very strong because of many newcomers, and he expects the same development in Latvia and Lithuania.
"Our strong presence in all three countries will be our advantage," he said.
Yrjo Vanhanen, director at Viru Hotel, said in a short-run perspective the new owner of Reval HG will probably not make any big changes on the hotel market, because Linstow is dealing in a different business section. Viru Hotel, a company owned by Finnish investors, controls about 20 percent of the hotel market in Tallinn.
"I hope the new owner is reasonable enough not to expand its activities in Tallinn in the near future. They should wait at least three years before they start increasing their capacities in Tallinn. It is the wish of all hotels on the Tallinn market," said Vanhanen.
In Vilnius and Latvia the market is expected to get lively after the privatization of large state-owned and municipal hotels.
"In Lithuania and Latvia, the market is different. Many renovations are taking place, and these investors have to look far into the future because they cannot earn money fast," said Vanhanen.
Compared to the first half-year results of 1999, the demand for hotel rooms on the Tallinn hotel market increased by 19 percent in the same period in 2000.
Vanhanen said the occupancy rates as well as the hotel prices will decrease this year and will continue decreasing next year as well.