Starwood Gives Activists Reason to Check In: Real M&A (Correct)
2015-04-20 16:07:25.137 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.
Corrects title of Wyndham’s Conforti in the 15th paragraph.)
By Tara Lachapelle
(Bloomberg) -- Starwood Hotels & Resorts Worldwide Inc. may
need to accommodate activist shareholders with a merger or
buyout.
Starwood, which owns high-end hotel chains such as W and
Westin, has one of the worst stock-return and growth outlooks in
the industry. It’s also entering the second month of searching
for a chief executive officer as pressure builds for the $14
billion company to buy some lower-cost hotel brands to keep up
with rivals.
Activists tend to sniff around when leadership is in flux,
and there’s already speculation that one is targeting Starwood.
Analysts say the end result could be one of several deal
scenarios, such as selling to Wyndham Worldwide Corp. or
structuring a tax inversion with InterContinental Hotels Group
Plc.
“Something is going to happen in the lodging sector,”
Patrick Scholes, a New York-based analyst for SunTrust Robinson
Humphrey Inc., said in a phone interview. “Starwood needs some
help.”
Starwood shares jumped 3.9 percent on March 26 after the
Federal Trade Commission gave clearance to an unspecified deal
between Starwood and Senator Global Opportunity Offshore Fund
Ltd., which is a unit of Senator Investment Group LP and owns a
stake in the hotel chain.
While Senator doesn’t typically take activist positions
itself, it seeks to profit from corporate mergers and
restructurings -- the type of situations that are often prompted
by activist investors. The hedge fund’s involvement in Starwood
is fueling bullishness for a stock that analysts otherwise see
little upside to owning over the next 12 months, forecasts
compiled by Bloomberg show.
‘Bias for Action’
A representative for Senator declined to comment. A
representative for Stamford, Connecticut-based Starwood didn’t
respond to a phone call or e-mail seeking comment.
“For what it’s worth, I’m someone who has a bias for
action,” Adam Aron, the interim chief executive officer of
Starwood, said in February after the abrupt departure of Frits
van Paasschen. “In taking on this challenge, even on an interim
basis, I have no intention of merely being a caretaker.”
Starwood shares fell 0.7 percent to $81.89 on Friday in New
York.
The company’s other brands include St. Regis, Sheraton, Le
Meridien and the Luxury Collection. In a merger with Denham,
England-based InterContinental, Starwood would also gain Holiday
Inn, Holiday Inn Express and Crowne Plaza, rounding out its
portfolio. Companies have also been structuring deals with firms
abroad in an attempt to lower their tax bills.
A representative for InterContinental declined to comment.
Pricey Proposition
While InterContinental’s 6.4 billion pound ($9.6 billion)
market value is smaller than Starwood, the company is more
expensive relative to sales and profit, which would pose a
challenge for any deal.
“Starwood has a lot of concentration at the high end of
the hotel segment, but that’s not where the growth is, so they
need some balance,” Nikhil Bhalla, an analyst for FBR & Co.,
said in a phone interview. “But in this stage of the cycle,
they’re going to have to pay up to acquire any brands and that
may not be accretive. So I think the best route for Starwood
would be a sale of the company.”
SunTrust’s Scholes said it might be a good fit for Wyndham,
which at $11 billion is slightly smaller than Starwood. Wyndham
lacks higher-end brands, which is a drawback because customers
that are loyal to certain hotels like to have options depending
on their type of travel, he said.
Wyndham Chief Financial Offer Thomas Conforti has said the
company is looking for acquisitions. Small transactions are more
likely, but “should a big deal come up that’s compelling and
helps us achieve our objectives, we wouldn’t shy away from it,”
Conforti said last month during an analyst conference. A
representative for Wyndham declined to comment.
Cleaner Target
Starwood’s plan to spin off its timeshare business may also
make it a cleaner target. The move is part of an industry trend
in which hotel operators are cutting their real estate holdings
to focus on property management and franchising. Conforti says
Wyndham is “religiously a franchising model,” owning just two
of the 7,500 hotels it operates.
To help facilitate a deal, Starwood could shift its
remaining properties into a real estate investment trust,
SunTrust’s Scholes said.
With interest rates still so low and the capacity to add
debt at Starwood, a leveraged buyout is an option, FBR’s Bhalla
said. And there’s precedent for LBOs in the hotel industry.
Good Time
Blackstone Group LP acquired Hilton Worldwide Holdings Inc.
for $26 billion in 2007 and took it public in 2013. Blackstone’s
gain in the deal is now about $14.8 billion. Blackstone, which
provided seed money to Senator when it opened in 2008 and bought
a minority piece of the business last year, also bought out the
La Quinta chain in 2005 and still owns a chunk of the company.
The other hotel operators aren’t under the gun to make an
acquisition right now, so a sale to a private-equity firm may
make the most sense, Bhalla said.
“It’s Starwood that needs to find a way to realize
value,” he said. “For any company to go private, this is
probably the best point to do it.”
For Related News and Information:
New Starwood Hotels CEO Faced With Expansion to Catch Rivals
Starwood Hotels CEO Van Paasschen Resigns as Board Seeks Growth
Starwood Jumps Most in Three Years on Timeshare-Unit Spinoff
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
Merger calculator: MRGC <GO>
--With assistance from Beth Jinks in San Francisco.
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman
2015-04-20 16:07:25.137 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.
Corrects title of Wyndham’s Conforti in the 15th paragraph.)
By Tara Lachapelle
(Bloomberg) -- Starwood Hotels & Resorts Worldwide Inc. may
need to accommodate activist shareholders with a merger or
buyout.
Starwood, which owns high-end hotel chains such as W and
Westin, has one of the worst stock-return and growth outlooks in
the industry. It’s also entering the second month of searching
for a chief executive officer as pressure builds for the $14
billion company to buy some lower-cost hotel brands to keep up
with rivals.
Activists tend to sniff around when leadership is in flux,
and there’s already speculation that one is targeting Starwood.
Analysts say the end result could be one of several deal
scenarios, such as selling to Wyndham Worldwide Corp. or
structuring a tax inversion with InterContinental Hotels Group
Plc.
“Something is going to happen in the lodging sector,”
Patrick Scholes, a New York-based analyst for SunTrust Robinson
Humphrey Inc., said in a phone interview. “Starwood needs some
help.”
Starwood shares jumped 3.9 percent on March 26 after the
Federal Trade Commission gave clearance to an unspecified deal
between Starwood and Senator Global Opportunity Offshore Fund
Ltd., which is a unit of Senator Investment Group LP and owns a
stake in the hotel chain.
While Senator doesn’t typically take activist positions
itself, it seeks to profit from corporate mergers and
restructurings -- the type of situations that are often prompted
by activist investors. The hedge fund’s involvement in Starwood
is fueling bullishness for a stock that analysts otherwise see
little upside to owning over the next 12 months, forecasts
compiled by Bloomberg show.
‘Bias for Action’
A representative for Senator declined to comment. A
representative for Stamford, Connecticut-based Starwood didn’t
respond to a phone call or e-mail seeking comment.
“For what it’s worth, I’m someone who has a bias for
action,” Adam Aron, the interim chief executive officer of
Starwood, said in February after the abrupt departure of Frits
van Paasschen. “In taking on this challenge, even on an interim
basis, I have no intention of merely being a caretaker.”
Starwood shares fell 0.7 percent to $81.89 on Friday in New
York.
The company’s other brands include St. Regis, Sheraton, Le
Meridien and the Luxury Collection. In a merger with Denham,
England-based InterContinental, Starwood would also gain Holiday
Inn, Holiday Inn Express and Crowne Plaza, rounding out its
portfolio. Companies have also been structuring deals with firms
abroad in an attempt to lower their tax bills.
A representative for InterContinental declined to comment.
Pricey Proposition
While InterContinental’s 6.4 billion pound ($9.6 billion)
market value is smaller than Starwood, the company is more
expensive relative to sales and profit, which would pose a
challenge for any deal.
“Starwood has a lot of concentration at the high end of
the hotel segment, but that’s not where the growth is, so they
need some balance,” Nikhil Bhalla, an analyst for FBR & Co.,
said in a phone interview. “But in this stage of the cycle,
they’re going to have to pay up to acquire any brands and that
may not be accretive. So I think the best route for Starwood
would be a sale of the company.”
SunTrust’s Scholes said it might be a good fit for Wyndham,
which at $11 billion is slightly smaller than Starwood. Wyndham
lacks higher-end brands, which is a drawback because customers
that are loyal to certain hotels like to have options depending
on their type of travel, he said.
Wyndham Chief Financial Offer Thomas Conforti has said the
company is looking for acquisitions. Small transactions are more
likely, but “should a big deal come up that’s compelling and
helps us achieve our objectives, we wouldn’t shy away from it,”
Conforti said last month during an analyst conference. A
representative for Wyndham declined to comment.
Cleaner Target
Starwood’s plan to spin off its timeshare business may also
make it a cleaner target. The move is part of an industry trend
in which hotel operators are cutting their real estate holdings
to focus on property management and franchising. Conforti says
Wyndham is “religiously a franchising model,” owning just two
of the 7,500 hotels it operates.
To help facilitate a deal, Starwood could shift its
remaining properties into a real estate investment trust,
SunTrust’s Scholes said.
With interest rates still so low and the capacity to add
debt at Starwood, a leveraged buyout is an option, FBR’s Bhalla
said. And there’s precedent for LBOs in the hotel industry.
Good Time
Blackstone Group LP acquired Hilton Worldwide Holdings Inc.
for $26 billion in 2007 and took it public in 2013. Blackstone’s
gain in the deal is now about $14.8 billion. Blackstone, which
provided seed money to Senator when it opened in 2008 and bought
a minority piece of the business last year, also bought out the
La Quinta chain in 2005 and still owns a chunk of the company.
The other hotel operators aren’t under the gun to make an
acquisition right now, so a sale to a private-equity firm may
make the most sense, Bhalla said.
“It’s Starwood that needs to find a way to realize
value,” he said. “For any company to go private, this is
probably the best point to do it.”
For Related News and Information:
New Starwood Hotels CEO Faced With Expansion to Catch Rivals
Starwood Hotels CEO Van Paasschen Resigns as Board Seeks Growth
Starwood Jumps Most in Three Years on Timeshare-Unit Spinoff
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
Merger calculator: MRGC <GO>
--With assistance from Beth Jinks in San Francisco.
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman