InterContinental Hotels Jumps on Report of Starwood Talks

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The InterContinental Hotel Davos in Switzerland.

Photographer: Chris Ratcliffe/Bloomberg

InterContinental Hotels Group Plc jumped in London trading after the Financial Times reported the company has held early-stage merger talks with Starwood Hotels & Resorts Worldwide Inc.

A deal would create the world’s largest hotel operator, with more than 1 million rooms in 100 countries. The talks are tentative and Starwood may chose a different partner or follow another strategy, the FT reported, citing two people familiar with the discussions. Reuters also reported that the companies had held talks.

InterContinental, based in Denham, England, closed up 4.6 percent at 2,743 pence in London, giving the company a market value of 6.5 billion pounds ($10.1 billion). Starwood, based in Stamford, Connecticut, rose as much as 5.2 percent and was little changed at $83.37 as of 12:06 p.m. in New York.

Starwood spokeswoman Carrie Bloom and InterContinental spokeswoman Zoe Bird declined to comment on the FT article.

Buying InterContinental, owner of the Holiday Inn and Crowne Plaza brands, would expand Starwood’s offering of midscale hotels and more than double its hotel rooms in the fast-growing Chinese market. InterContinental operates 722,600 rooms, including 79,000 in China. Starwood, whose brands include the Sheraton and W, has 358,400 rooms.

Little Overlap

“It doesn’t seem like you’re creating a lot of redundancies with the brands, which is good,” said Suntrust Robinson Humphrey analyst Patrick Scholes, who has a hold rating on both Starwood and InterContinental.

Following the Financial Times report, Reuters said Starwood had held talks with both InterContinental and Wyndham Worldwide Corp., which has 667,000 rooms in 70 countries. Its brands include Ramada and Travelodge. Citing people familiar with the matter, Reuters said Starwood is also talking with sovereign wealth funds.

“We don’t comment on market rumors or potential M&A,” Wyndham spokeswoman Margot Happer said.

Starwood in April said it was exploring strategic and financial alternatives to increase shareholder value. That fueled speculation that it may bid for InterContinental, which has been considered an acquisition target for more than a year.

Shareholder Marcato Capital Management LP, criticizing InterContinental’s management, last year called for a merger, arguing that could double the company’s valuation.

Earnings Reports

Starwood and InterContinental reported earnings today. Starwood’s second-quarter adjusted earnings of 84 cents per share beat a Bloomberg analyst estimate of 74 cents. InterContinental’s first-half net income climbed to $205 million from $162 million a year earlier.

“We never comment on speculation, and if somebody makes an offer, we’re a British company, and we’d consider it,” InterContinental Chief Executive Officer Richard Solomons said in an interview on Bloomberg Television on Thursday. Solomons made the comments following the company’s first-half earnings release, before the Financial Times published its article.

InterContinental and Starwood have both been moving to cut real estate holdings to focus on property management and franchising. In November, Starwood sold its Sheraton on the Park in Sydney to China’s Sunshine Insurance Group.

InterContinental this month agreed to sell the InterContinental Hong Kong to a group of investors advised and managed by Gaw Capital Partners for $938 million.

Starwood is scheduled to hold an analyst call to discuss earnings at 1 p.m. New York time.

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