Conjecture and rumor continue about a possible sale of InterContinental Hotels Group to a rival hotel operator. Here's the latest.
The Wall Street Journal a few days back added gasoline on a flagging fire that had begun in May, writing that Marcato Capital Management, which reportedly owns a 4-percent stake in IHG, had hired an investment bank to excite interest from U.S. hotel companies that could possibly cut down on their tax bills by buying U.K.-based IHG.
The manuever is known as a tax inversion, wherein a U.S. company buys a foreign company and is therefore afforded that country's tax rate, usually lower than the U.S.'s relatively high 35-percent corporate rate. For a deal to qualify as an inversion, shareholders of the acquired company must receive stock amounting to at least 20 percent of the resulting entity.
WSJ further reported that the ploy has become more popular, as companies look to keep up with rivals and consummate deals before any policy changes here in the U.S. In fact, President Barack Obama last month called on Congress to stop the flow of companies moving abroad by changing the rules. Whether it is un-American or a smart business move is for the public to decide. Fortune's Allan Sloane makes the case for the former.
San Francisco-based Marcato began building its position in IHG earlier this year when the hedge fund was looking for ways to gain investment exposure to the surge in tax-inversion deals, one person familiar with the fund told The Wall Street Journal.
Up To Date
So, who just might have the juice to acquire IHG? Speculation has put Starwood Hotels & Resorts Worldwide and Wyndham Worldwide in the frame. In fact, according to a recent article from the Financial Times, Wyndham, reportedly, approached IHG about a potential $10-billion takeover. Although, some speculate it was Starwood, not Wyndham, who made the $10-billion overture. For comparison, Blackstone Group paid around $26 billion for Hilton Worldwide back in 2007.
But IHG's CEO, Richard Solomons, while still reluctant to show his hand, is no more fighting off the speculation, like he did at June's NYU Hospitality Investment Conference, where he dismissed any and all questions about a possible sale.
“Let’s be honest,” he told the FT, “if there is an alternative approach, I can assure you the board would look at it.”
He added this, to UK's The Telegraph, "We're a public company with a very experienced board and chairman, and if there was an approach that was value creating for shareholders of course we would look at it.
"We didn't talk about the announcement before Marcato put it out. These are new shareholders and we've got a long list of long-standing shareholders who support us in our strategy. I think we've done well by them."
In a statement, Marcato said, "This review will focus on various alternatives including, but not limited to, improving capital structure and/or capital allocation and strategic transactions. Marcato believes current, favourable market conditions presently exist to significantly enhance IHG shareholder value, which may not be available in the future."
Solomons also insisted to the FT that "big hotel chains do not need M&A to increase their market share." IHG reportedly operates about 5 percent of the world's hotel rooms. Analysts think otherwise. “For a big global industry, it is remarkably fragmented,” Wyn Ellis at Numis told the FT.
IHG's petition to remain left alone may have been backed up by its strong second quarter, as its operating profit jumped 6 percent.