Interstate Hotels Goes Private in $307M Merger

March 19, 2010
By Barbra Murray, Contributing Editor

The closing of a $307 million transaction has taken Interstate Hotels & Resorts to the private sector.

The Arlington, Va.-based hotel investor and management company merged with Hotel Acquisition Company L.L.C., a 50/50 joint venture involving subsidiaries of Annapolis, Md.-based Thayer Lodging Group’s Thayer Hotel Investors V-A L.P. fund and Hong Kong-headquartered Shanghai Jin Jiang International Hotels (Group) Company Ltd. With the completion of the deal, Interstate Hotels is now a private entity–and still the largest independent hotel management concern in the U.S.

The merger agreement called for Hotel Acquisition to pay a cash sum of $2.25 per share for outstanding Interstate Hotels common stock, and assume existing debt. Interstate Hotels divulged plans for the merger and the Board of Directors’ approval of it in December 2009.

But the road to completion wasn’t entirely smooth. Soon after news of the transaction emerged, a handful of law firms revealed that, on behalf of various shareholders, they had commenced investigations into Interstate Hotels’ Board of Directors’ possible breaches of fiduciary duty and other violations by green-lighting the deal. Specific issues involved claims that the offer of $2.25 per share was nearly half the company’s book value, as well as concerns regarding the fairness of the approval process. However, shareholders ultimately gave the go-ahead for the merger with the Thayer and Jin Jiang joint venture on March 11.

With the acquisition wrapped up, Interstate Hotels gets to move forward on stronger footing. “We intend to provide them with the financial resources that will allow them to offer even greater service to their existing clients and guests,” Leland C. Pillsbury, co-chairman and CEO of Thayer Lodging, said in a prepared statement.

Many investors see the merger as a positive move for Interstate Hotels. “The company was struggling to demonstrate the value of its management platform and the market wasn’t giving them fair value for their owned hotels,” David Loeb, an analyst with Robert W. Baird & Co., told CPE. “It’s a win for shareholders; they weren’t seeing that kind of valuation before the transaction took place.”

Loeb anticipates that the merger will ultimately prove a very wise move, particularly given the new owners’ plans for Interstate Hotels’ management contracts: “Their intention is to leave most of the management in place, so cancelable management contracts don’t get canceled.”

Interstate, along with its affiliates, manages and/or owns interests in 228 hotel properties accounting for 46,000 guestrooms in 36 states and the District of Columbia, as well as, India, Mexico, Belgium, Canada, Ireland and England. The company is also under contract to manage 13 properties that are currently in the development process; these deals will allow Interstate Hotels to make its debut in new markets, including Costa Rica.