IHG should merge – Marcato
A US hedge fund is trying to persuade hotelier InterContinental Hotels to consider a massive merger with a big rival.
Marcato Capital Management, which owns a 4 per cent stake in IHG, says the company should consider a possible merger with one of six rivals: Starwood; Marriott; Hilton; Wyndham; Hyatt; or Accor. The activist investor made the claims in a 77-page report published on Tuesday.
“Each of these companies would be a fit for IHG by broadening its geographic footprint in the most desirable hospitality markets, expanding chain scale diversification, increasing asset-light earnings, realising cost savings, improving system fund benefits, and lowering cost of capital”, Marcato said.
Richard McGuire, the founder of Marcato, says in an open letter to IHG’s shareholders he built up its stake in the business over concerns that the board “was not giving due consideration to the strategic alternatives available in the current industry and M&A environment”.
Mr McGuire said that IHG had rebuffed his suggestions and “appears they have neither solicited offers nor performed the rigorous analysis necessary to evaluate potential options to achieve this goal”.
IHG reportedly spurned a $10 billion approach from a US rival in May, believed to be Starwood Hotels, owner of the Sheraton and Westin brands, or Wyndham, which includes the Ramada and Days Inn chains.
In a presentation to shareholders the activist says “This type of unsolicited approach is quite rare in the hospitality industry and generally would lead to a comprehensive review of strategic alternatives by the IHG board”.
The San Francisco based activist hedge fund hired bankers at Houlihan Lokey in August to conduct a strategic review of the company.
Marcato argued that IHG should pursue a deal as it was an “extremely favourable time in the hotel market cycle…and tailwinds in the global M&A market should contribute to the board’s urgency.” In addition, the activist investor flagged record-low interest rates and an increasing desire for geographic diversification.
