December 15, 2014 / 3:10 PM / in 5 years

UPDATE 1-France's Accor eyes earnings boost from China deal

* Deal EPS neutral in first year, accretive thereafter - CEO

* Deal worth $160 mln, to close in H2 2015 - CEO

* Accor shares 0.9 pct higher at 1500 GMT (Recasts with CEO comments; adds analyst comment, share price)

By Dominique Vidalon

PARIS, Dec 15 (Reuters) - French hotel operator Accor said on Monday its strategic alliance with China Lodging Group will boost earnings after the first year and help quicken its expansion in the fast-growing Chinese domestic travel and hospitality market.

The $160 million deal, the latest in a series of Franco-Chinese alliances in the tourism sector, will see China Lodging Group become the main franchisee for Accor’s budget and midscale hotels in China, Accor Chief Executive Sebastien Bazin said.

“The transaction reflects Accor’s strong will to expand in China,” Bazin told reporters. “There are 15 hotel rooms in the United States for 1,000 people, 10 hotel rooms for 1,000 people in Europe and less than two hotel rooms in China.”

Accor, the world’s fourth-largest hotelier after Intercontinental, Marriott and Starwood, wants to expand in fast-growing emerging markets to offset slower growth in Europe, where it makes 70 percent of revenue.

The deal, announced on Sunday and due to close in the second half of 2015, will combine Accor’s budget and midscale brands including Ibis, Novotel and Mercure with the 1,849 existing Huazhu hotels run by China Lodging.

Accor, which has 3,700 hotels in 92 countries, currently has 144 hotels in China, including 100 budget-midscale hotels.

“We view the transaction as an acknowledgment that Accor and its brands have failed to keep pace with the fast growing, local and predominantly budget players - China Lodging, Home Inns, 7 Days,” Credit Suisse analysts said in a note.

“The deal should quicken the pace of growth but will lead to more of the economics being paid away to China Lodging.”

Bazin said, however, that the impact on earnings per share would be “totally neutral in the first year and extremely positive afterwards”.

The companies will also link loyalty programmes, giving each group access to a global network of 47 million cardholders, a key move in Accor’s efforts to bolster its digital business to fight competition from online rivals such as Expedia .

A growing number of French and Chinese groups have joined forces in recent months to seek opportunities in tourism. Last month U.S. investment group Starwood Capital agreed to sell Europe’s No. 2 budget operator, Louvre Hotels Group, to Chinese partner Jin Jiang International Holdings Co. Ltd . (Reporting by Dominique Vidalon Editing by Alexandria Sage and James Regan)

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