ARLINGTON, VA—Park Hotels & Resorts is acquiring Chesapeake Lodging Trust for $2.7 billion in a cash-and-stock transaction. The combined entity, when the deal closes, will have an enterprise value of $12 billion. It will own 66 hotels in urban and resort markets in 17 states and the District of Columbia—a number that takes into account the pending sale of 5 Park hotels.

The transaction has been approved by the board of directors and board of trustees of Park and Chesapeake.

Under the terms of the merger agreement, Chesapeake shareholders will receive $11 in cash and 0.628 of a share of Park common stock for each Chesapeake share. The fixed exchange ratio is $31 per share of Chesapeake shares of beneficial interest based on Park's trailing 10-day volume weighted average price as of May 3, 2019. This represents $31.71 per share of aggregate value to Chesapeake shareholders and a premium of approximately 11% to Chesapeake's trailing 10-day volume weighted average price and approximately 8% to Chesapeake's closing stock price on May 3, 2019.

Upon closing, Park stockholders and Chesapeake shareholders will own approximately 84% and 16% of the combined company, respectively. The transaction is subject to customary closing conditions, including the approval of Chesapeake shareholders. The companies currently expect the transaction to close in late third quarter or early fourth quarter of 2019.

The acquisition is part of Park's plan to upgrade the quality of its portfolio and diversify its brand, operator and geographic footprint, according to Thomas J. Baltimore, Jr., chairman and CEO of Park.

As part of the agreement, Park's Board of Directors will be increased to ten members upon closing, with two additions from Chesapeake's Board of Trustees. Baltimore will continue to serve as chairman of Park's Board of Directors and will also continue to lead the combined company, along with Park's existing senior management team.

Park to Sell Five Hotels

Park plans to sell five non-core hotels prior to the proposed closing, including both of Chesapeake's New York City hotels—the 122-room Hyatt Herald Square New York and the 185-room Hyatt Place New York Midtown South—in addition to three non-core hotels which are currently under contract.

Strategic Plans To Grow Value

The combined company expects to increase Chesapeake's group segmentation and replace lower-rated contract business, enhance food and beverage profitability, driving ancillary income, and source additional cost savings. Additional value creation will include repurposing underutilized space as meeting space expansions, adding additional keys, energy efficiency projects and brand repositionings at select properties. Overall, Park has identified approximately $24 million of potential upside for next year and approximately $34 million of potential upside in 2021 across Chesapeake's portfolio, including approximately $17 million of annual G&A savings.

The combined company also expects to benefit from enhanced scale in markets in which both companies currently have a presence, such as San Francisco, and from Park's diversification strategy.

Park has secured a $1.1 billion commitment from BofA Merrill Lynch to finance the cash component of the merger, repay Chesapeake's unsecured term loan and two mortgages and pay for a portion of the transaction costs.

BofA Merrill Lynch and Barclays are acting as financial advisors and Hogan Lovells is acting as legal counsel to Park. JP Morgan Securities is acting as exclusive financial advisor and Paul, Weiss, Rifkind, Wharton & Garrison and Polsinelli PC are acting as legal counsel to Chesapeake.

Instant Insights /

Park Hotels & Resorts Buys Chesapeake Lodging For $2.7B

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