Friday 23 February 2018

Starwood Hotels becomes a target for buyout shops

Westin is just one of many brands owned by Starwood Hotels
Westin is just one of many brands owned by Starwood Hotels

Tara Lachapelle

Starwood Hotels & Resorts 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 $14bn 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 or structuring a tax inversion with InterContinental Hotels.

"Something is going to happen in the lodging sector," Patrick Scholes, a New York-based analyst for SunTrust Robinson Humphrey, said in a phone interview. "Starwood needs some help."

Starwood shares jumped 3.9pc on March 26 after the Federal Trade Commission gave clearance to an unspecified deal between Starwood and Senator Global Opportunity Offshore Fund, which is a unit of Senator Investment Group 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 fuelling bullishness for a stock that analysts otherwise see little upside to owning over the next 12 months, forecasts compiled by Bloomberg show.

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's other brands include St. Regis, Sheraton and Le Meridien. 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.

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