InterContinental Hotels Group is back in the news this morning, after reports of a stakeholder pushing for the group to seek a merger with a U.S. hotel company have once again surfaced.
The pressure is coming from hedge fund Marcato Capital Management, which owns a 4-percent stake (around $3.5 billion) in IHG, and yesterday published a report that claims a merger could deliver a premium upward of 100 percent over IHG's current share price, reports Invezz.
The hedge fund identified six possible suitors: Starwood, Marriott, Hilton, Wyndham, Hyatt or Accor. "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, realizing cost savings, improving system fund benefits and lowering cost of capital," Marcato said.
Marcato Capital Management is an activist hedge fund headed by Mick McGuire. In the letter, he expressed that a merger could result in “immediate, significant and abiding shareholder value” far exceeding what “is likely to be created under IHG's current business plan.”
As ValueWalk reports, Marcato said it is becoming "more concerned that the board of directors of IHG was not giving due consideration to strategic alternatives currently available in the industry," which include reports that the board of the hotels group rejected a $10-billion unsolicited offer in May from either Starwood or Wyndham.
News of a possible sale was sparked this summer, and not only for IHG's benefit, but for a U.S. group's. IHG is based in Europe, so a U.S. group acquiring it would get the benefit of what 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.
IHG's response was swift. It has reportedly ignored the pressure, stating that it's committed to its current strategy. The board of directors did say it maintains an active dialogue with its shareholders and welcomes its feedback. IHG added that its board regularly considers all options to drive shareholder value.
According to IHG, and as reported by Invezz, its board met twice with Marcato, reviewed its analysis and concluded that it "remains in the best interest of all shareholders to continue to pursue its current strategy."