7 Days Inn: An entrepreneur’s dilemma between public and private ownership

• Main Authors: LIM, Meng Ann, MATHUR, Sarita
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2015
• Subjects: Finance; Privatisation; Public listing; Stock market performance; Private equity; Corporate governance; Budget hotels; Hospitality industry; China; Asia; Asian Studies; Corporate Finance; Hospitality Administration and Management
• Online Access: https://ink.library.smu.edu.sg/cases_coll_all/114; https://cmp.smu.edu.sg/case/1721
• Institution: Singapore Management University

The case starts with Alex Zheng, co-chairman and chief executive officer (CEO) of 7 Days Inn, pondering over possible growth strategies for his company, the second largest economy hotel chain in China. Since its inception in 2005, 7 Days Inn had grown from a fledgling start-up to a leading budget hotel chain. In late 2009, despite the uncertain economic climate, Zheng saw the company through an initial public offering (IPO) where 7 Days Inn became the first Chinese budget hotel chain to be listed on the New York Stock Exchange (NYSE). The IPO greatly enhanced the company’s credibility, and helped establish the 7 Days Inn brand across China. However, two years down the line, Zheng felt that he and the company had been enslaved by the stock market. He had grand plans to expand the business but the board and the US institutional investors were focused on the shorter-term goals of delivering quarterly earnings that the stock market expected. He was further aggravated by the lacklustre performance of the company stock price. 7 Days Inn had tried numerous means to prop up the share price, however, none of the measures helped buttress the depressed stock price. Zheng knew that the goal to expand 7 Days Inn into a leading, multi-brand hotel company was realistic and feasible. He debated the options: he could opt for status quo and hope that his strategy would eventually be approved and endorsed by the US investors or he could privatise the company in order to gain the freedom to do so. Privatisation would give management the much needed independence to pursue the company’s strategic growth plans, but it was also risky – at a time when the success of most Chinese companies was measured by their ability to float an IPO in the United States, Zheng was proposing to do exactly the opposite. Was privatisation the right strategy for 7 Days Inn?