Starwood sale saga plays out in real time

Yesterday evening, with the New York Mets losing to the San Diego Padres, news broke over social media that Met shortstop Wilmer Flores had been traded to the Milwaukee Brewers. Problem was, poor Wilmer seemed to be the only person in the stadium who didn't know. As he jogged off the field in the middle of the sixth evening, the Mets faithful gave him a standing ovation. Having only a measly infield single up that point, he must have thought the applause was for someone more deserving. Soon, he learned his fate, which drove him to tears. (The trade actually never came to fruition when the Mets backed out of it for dubious reasons.)

What does this have to do with hotels? Nothing, but everything.

Everything today of import is played out in traditional and social media in real time. You literally can't keep anything under wraps: it unfolds for public consumption almost as quick as its made in private.

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Which brings us to Starwood Hotels & Resorts Worldwide. Today, July 30 at 5:39 pm London time, the Financial Times published an online story citing sources who told it that InterContinental Hotels Group had held early discussions with Starwood "over a union to create the world’s largest hotel group."

For its part, IHG quickly debunked the rumor, stating that the board of directors was not in talks with Starwood "with a view to a combination of businesses." The consensus was they were, but talks broke off.

IHG CEO Richard Solomons didn't take the bait during his company's second-quarter earnings call where he reported a 21.5-percent rise in first-half pre-tax profits to $458 million.

Solomons did say that IHG’s strategy was to grow organically. "There is a lot of noise around consolidation. If you look back a few years it was real; now it is effectively organic," he said. "We have had extensive organic consolidation: we signed more deals in the first half than any time since 2008, we are building new brands and buying up little brands like Kimpton."

In April, Starwood ostensibly put itself up for sale, hiring investment bank Lazard to explore a full range of strategic and financial alternatives to increase shareholder value.

The move came on the heels of former CEO Frits van Paasschen's dismissal and subsequent appointment of Adam Aron as interim CEO. A title he still carries.

Starwood reported an 11-percent fall in quarterly profit, hurt particularly by a strong dollar: More than half of Starwood's revenue is derived from outside the U.S., while, in contrast, Hilton Worldwide and Marriott International get most of their revenue from within the U.S.

Net profit attributable to Starwood fell to $136 million in the second quarter from $153 million at the same time last year.

The news prompted Jefferies analyst Ian Rennardson to write in a note: "We expect the market to be disappointed by the lack of progress," Jefferies analyst Ian Rennardson wrote in a note to clients."

As FT further wrote quoting a source, "Starwood may be conducting parallel talks with other interested parties, with candidates likely to include Wyndham Worldwide, which earlier this week reported Q2 earnings that exceeded Wall Street expectations.

There had been similar speculation that Wyndham had "informally approached IHG about a potential £6b-billion takeover last year.

Oddly enough, a little more than a year ago, there were whispers that IHG was being targeted by Starwood. In November, reports surfaced that IHG shareholder, hedge fund Marcato Capital Management, which owns a 4-percent stake (around $3.5 billion) in IHG, published a report that claimed a merger could deliver a premium upward of 100 percent over IHG's current share price. The hedge fund identified six possible suitors: Starwood, Marriott, Hilton, Wyndham, Hyatt or Accor.

If Starwood was the one to buy IHG, it would be a shot in the arm to their midscale portfolio, where it's been criticized. Buying IHG would expand Starwood’s offering of midscale hotels and more than double its hotel rooms in the Chinese market. IHG operates 722,600 rooms, including 79,000 in China, and operates such midscale offerings as Holiday Inn and Holiday Inn Express.

Which brings us to this: Is Starwood the New York Mets of the hospitality industry? After the Flores debacle, the Mets were castigated by the media for botching up the trade in a way that only the Mets could do. Meanwhile, Starwood's stock price, after the current fallout, dropped the most it has in nine months. Shares were down 5.2 percent to $78.38 at 3:31 p.m. in New York trading. They fell as much as 6.1 percent earlier Thursday, the biggest intraday decline since Oct. 28.

If there is one thing that is constant, it's media: a 24/7/365 operation that doesn't take a second off for a breather. Whatever moves are made, you can be sure the public knows them, too. Makes it hard to get anything done in private, doesn't it?

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