SAN FRANCISCO—Activist shareholder Marcato CapitalManagement, headquartered here, is urgingIntercontinental Hotels Group to explore a mergerwith a rival. The investment manager on Thursday issued a statementfollowing published reports that UK-based IHG, the world's largesthotelier with seven brands and 4,700 properties, had rejected anunsolicited $10.1-billion takeover offer.

A statement attributed to Mick McGuire,Marcato's founder and managing partner, says that while theveracity of the published reports cannot be determined, Marcatobelieves that an IHG combination with a larger hotel operator wouldhave “compelling strategic and financial merit,” representing “aunique opportunity to reshape the global hospitality industry.”McGuire, whose firm owns approximately 3.8% of IHG's outstandingshares, says Marcato strongly encourages IHG's board “to exploresuch a combination.”

The bidder's identity is not known, although Sky News reported last week that possible suitorsincluded Starwood Hotels & Resorts orStarwood Capital Group. Likely the bid came fromthe US, “with US hotel operators understood to be enticed by theprospect of moving their tax domicile to the UK in a process knownas a tax inversion,” according to Sky News.