Starwood for sale, tipped to buy IHG: speculation rife

InterContinental Hotels Group shares soared to record highs amid speculation it will be bought by Starwood after the group announced it is in the beginning stage of a strategic and financial review.

Starwood’s Board of Directors announced this week it has determined to “explore a full range of strategic and financial alternatives to increase shareholder value”, and retained banker Lazard Ltd to assist in the process.

“No option is off the table, and we will take the time we need to thoroughly evaluate our opportunities and achieve the best result for our shareholders, business partners, and associates,” chairman, Bruce Dunanc said.

Starwood said it “does not intend to make any further public comment regarding the review until it has been completed”, but shares jumped to a 6-year high after the announcement.

“The mostly likely scenario is to put up the company for sale”, Stifel Nicolaus analyst Simon Yarmak told Reuters.

MLV & Co. analyst Ryan Meliker was also quoted by Bloomberg adding: “By saying no option is off the table, Starwood is indicating a potential sale of the company is possible. We believe the company could be worth well above US$100 per share to a strategic or leveraged buyer”.

However, following the announcement, InterContinental Hotels Group (IHG) London trading rose to record high since being on the market in 2003, fuelling speculation the two companies would combine and Starwood would buy IHG.

Last November, IHG was urged to merge with another “major hotel group” by Marcato Capital Management.

“The logic for a tie-up between IHG and Starwood is quite clear … It would be a neat fit in terms of brand profile and geographic coverage,” Numis Securities, with a hold rating on InterContinental, analyst Wyn Ellis told Bloomberg.

“Buying InterContinental would help Starwood gain better access to China, where InterContinental has more than 240 hotels.”

On the flipside, FBR Capital Markets & Co analyst Nikhil Bhalla said on Bloomberg TV that the likelihood for a major hotel group, including IHG or Marriott, to buy Starwood would be slim and out of line with current strategies to manage, not own, properties.

“To buy Starwood you’ll be stuck with a big chunk of hotels that they own, and you’re going to have to figure out what to do with that,” he said.

“The highest probability is that the company markets itself to a long-term ‘sticky’ buyer like a sovereign wealth fund out of a Middle Eastern country or potentially one or group of investors in emerging markets,” Bhalla said.

According to Bhalla, the company fell apart “long before” former ceo Fritz Van Paasschen resigned in February, and that the Starwood strategy “failed because there was too much focus on international growth”, and “because it didn’t have good brands in the fastest growing area of our industry, which is the upscale segment or the mid-tier economy segment” where competitor brands have been growing.

There are only that many large scale Sheraton or Westin hotels to put in the city centre … they did not have a very good platform in that segment. You need to have smaller brands to fill the edges.” Bhalla said on Bloomberg.

Starwood reportedly had a market valuation of about US$14 billion the day before the announcement.

Earlier this month, Starwood said it will launch a new collection of independent hotel brands under Tribute Portfolio, the first new brand for the group in nine years.

Travel Weekly contacted both Starwood and IHG for comment, but did not receive reply at the time of publication.

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