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Analysis

Will Starwood Hotels & Resorts be sold, rented or offered a merger proposal?

Starwood Hotels & Resorts has hired investment bank Lazard to "explore a full range of strategic and financial alternatives" to satisfy shareholders that were disappointed by the group's latest results. Rumors abound, whether about a takeover, asset disposals, a merger with another hotel operator... Hospitality On reviews possible outcomes, and the profile of market players that might get involved.

Starwood Hotels & Resorts' shareholders are exploring "a full range of strategic and financial alternatives to increase shareholder value" of the hotel company. In other words, there are talks about possible asset disposals, a merger, or eventually the sale of the business.

The company's Board of Directors had obtained in February the resignation by "mutual agreement" of former CEO Frits Van Paasschen (read our article). The Dutchman suffered in particular from his development strategy, which was deemed "too international" and thus less positively impacted by the positive RevPAR trend on the North American market. As his successor has not yet been announced (Adam Aron is the interim CEO), speculations about the group's future have gained momentum, all the more so since several "activist investors" have been said to be buying shares and putting pressure on management. Disappointing Q1 2015 results will not help: the group's earnings have fallen from $136 million in 2014 to $99 million this year. Earnings per share are down from $0.72 to $0.58.

So, "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," stated Bruce Duncan, Chairman of the Board, in a press release. The group has hired investment bank Lazard to explore "all options."

This dynamic is in line with comments and insights from the 2015 Global Lodging Forum, notably those expressed at the Strategic Forum's round tables featuring experts, hotel groups' key executives, and by M. Vanguélis Panayotis during his speech on hotel geopolitics. However, it won't be that easy for the group to find a hotel partner big enough to take over Starwood Hotels & Resorts given its high Enterprise Value ($16.5 billion as of April 1, 2015):



Taking this into account, different scenarios will probably be explored: a merger "between equals" with a major group of similar size or one of the rising stars of emerging countries, a takeover by one of the few other large groups, or most likely a buyout from some "deep pocket" market player(s) like Private Equity funds, High Net Worth Individuals" or sovereign funds from countries already invested in the hotel business, or a deal implying asset disposals -to Real Estate Investment Trusts for instance-, delivering cash available for dividend distribution... The bank will have to find the deal profile that generates the most value for (current) shareholders.

Whatever may happen, such rumors confirm one of the key strategic insights of the 2015 Global Lodging Forum (extracts available in a few of our articles):

Also read:

  • Starwood Hotels & Resorts changes CEO: Frits Van Paasschen steps down
  • Global Hotel Ranking: A second Chinese Operator climbs into the Top10
  • Alternative accommodations: is the hotel industry being ubered?

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