Shareholders Step Up as Hoteliers Face Crossroads

STAMFORD, CT—Three lodging companies at a crossroads, three investors making waves. Bloomberg Business reported late Friday afternoon that Paulson & Co. had disclosed a stake in Starwood Hotels & Resorts Worldwide that makes the money-management firm Starwood's largest shareholder with a 7% share. Paulson had not owned any shares in the company prior to acquiring 12 million shares valued at $973 million, according to Bloomberg, which noted that Paulson “is known for taking stakes in companies that are likely to be involved in takeovers.”

This past April, the Stamford, CT-based lodging giant announced that it had hired Lazard to help it evaluate options, including a possible sale. More recently, published reports had Starwood and Intercontinental Hotels Group discussing a possible merger, although IHG later denied that any such conversations were taking place. “The kind of investor that is moving into these shares today is one who sees a long-term value in the company and the possibility of a near-term larger strategic move,” David Loeb, an analyst with Robert W. Baird & Co., told Bloomberg on Monday

Bloomberg also quoted Lukas Hartwich, a lodging analyst at Newport Beach, CA-based Green Street Advisors, “The probability of a big strategic move is a lot lower than some people seem to think. But it's a valuable company with a lot of valuable brands. It may look a little beaten up right now, but it's attractive once the company refocuses a bit.”

On Monday morning, Bill Gates' Cascade Investment LLC reported in an SEC filing that it had increased its stake in lodging REIT Strategic Hotels & Resorts, bringing its share to 9.8% from 9.2% earlier in the year, second only to the stake held by Vanguard Group. The filing coincided with Strategic's announcement Monday morning that it had hired J.P. Morgan to assist in an exploration of its options, also including a possible sale. Cascade's SEC filing also disclosed that it had entered into a confidentiality and standstill agreement with the Chicago-based REIT providing, among other things, for “the sharing of certain non-public information.”

Also on Monday morning, Rambleside Holdings, one of the largest shareholders in Morgans Hotel Group, went public with a letter that took the New York City-based company to task for pursuing a possible merger—reportedly with Sam Nazarian's SBE—that in Rambleside's view would undervalue Morgans. “We believe the path to maximize value for all stakeholders involves selling the company or key assets, separately or as a package, in a widely marketed sale process and/or merging the management company with a world class hotel and brand manager that can leverage its platform to maximize value of the company's coveted brands,” Rambleside CEO Gregory Cohen wrote in a letter to Morgans chairman Howard Lorber.

Cohen added that Rambleside wanted “to participate in that process. Specifically, we would be prepared to pursue a transaction that would value the company at a meaningful premium over the current trading price. We have hired legal advisers and are confident we can secure the necessary financing. We are disappointed that the company has refused to engage with us on this opportunity.”

The company-level interest by investors occurs as investment in the lodging sector continues to boom. “Robust investor appetite is expected to continue, with greater participation from a wider array of equity sources,” Daniel Lesser, president and CEO of LW Hospitality Advisors LLC, wrote in a quarterly update for GlobeSt.com last month. “The stars continue to remain aligned and the fundamentals of the US lodging industry are simultaneously favorable to buy, sell, and develop a variety of lodging product types.”