ARLINGTON, Va.—The first example of the all-cash, Chinese-backed acquisitions that analysts predicted would jumpstart the 2010 transactions market has taken place. Thayer Lodging Group and Shanghai’s Jin Jiang International Hotels will purchase Interstate Hotels & Resorts in a joint-venture transaction valued at approximately $307 million.
Interstate issued a statement today saying it has signed a definitive merger agreement where Thayer and Jin Jiang, under the “Hotel Acquisition Company LLC” moniker, will acquire all of the outstanding common stock and operating partnership units of Interstate for $2.25 per share. The price represents a premium of 77 percent over yesterday’s closing stock price, Interstate reported.
The merger is expected to close in the first quarter of 2010, pending stockholder approval.
“Clearly we wanted to do a deal that maximized shareholder value,” said Bruce Riggins, CFO of Interstate. “We were very comfortable with that, given the two sponsors.”
Thayer, a privately held real-estate investment company, will take Interstate, the nation’s largest independent hotel management company, private. Riggins said Interstate will continue to manage its current portfolio.
“It is our expectation that the company structure, the corporate offices, all stay in place,” Riggins said. “Interstate will be a private company owned by a joint venture called the Hotel Acquisition Company.”
Fundamentally, 2009 was one of the industry’s worst years in history, as an economic recession forced travelers to cut back and a credit-market crash limited hotel investors’ ability to transact. But many had predicted a somewhat looser credit market beginning to open up, and buyers who had been sitting on cash were expected to make moves because assets can be obtained at value.
A forecast published by PricewaterhouseCoopers on Thursday said merger-and-acquisition activity will pick up in 2010 and opportunities will arise for buyers with strong balance sheets.
Reached by phone Friday, Scott Berman, advisory practice leader of PwC’s hospitality and leisure group, could not comment specifically on the transaction, but said, “I think it will stimulate some additional dialogue. We certainly welcome more transactions in 2010.”
In Thursday’s report, PwC said more than $1 trillion of alternative-investment capital is ready to be infused into the market when credit markets loosen further and valuable deals present themselves.
Lee Pillsbury, Thayer’s CEO, began his partnership with the Jin Jiang Group in 2005 after a trip to China concluded that a significant opportunity existed to help Chinese domestic hotels compete more successfully. At the time, no automated systems with full connectivity existed to serve the domestic market. Hubs1 was launched, backed by Thayer and Jin Jiang.
The partnership has flourished, and talk of acquiring a top-tier international operating company with global presence began. Executives from the two firms reviewed numerous potential companies before deciding to focus on Interstate, according to an executive.
Ironically, Pillsbury will receive the 2010 International Society of Hospitality Consultants Pioneer Award at the Americas Lodging Investment Summit in January for his successful visions in co-founding Thayer and TIG Global.
“He’s a real visionary in the industry,” said Matt Arrants, president of ISHC and managing director of Pinnacle Advisory Group. “He presented at The Distressed Hotel Summit, where he was one of the only panelists who said we were poised for a recovery. He’s known for his timing: Thayer sold a lot of assets just before the peak of the market this last go around, and he’s poised to be a player again this time around.”
Interstate’s board of directors has unanimously approved the most recent merger agreement and has recommended approval of the transaction by Interstate’s stockholders. Stockholders will be asked to vote on the proposed transaction at a special meeting that will be held on a date to be announced. The merger is expected to close in the first quarter of 2010, pending stockholder approval and satisfaction or waiver of other customary closing conditions.
“Our priority, as always, is to maximize shareholder value,” Thomas Hewitt, Interstate’s chairman and CEO, said in a statement. “This is a very compelling offer at a significant premium. The hotel industry remains in deep recession, and we believe this transaction offers the highest and best value to our shareholders.”
“Interstate offers a unique platform with in-depth industry expertise, international operations, and scope of experience gained over 50 years, along with a stellar reputation as a first-rate operator,” Pillsbury said in the statement.
“Interstate has a global reputation as a world-class, independent hotel operator. This acquisition significantly accelerates our ability to expand internationally, giving us immediate access to a worldwide platform. We also expect to mutually benefit from our global relationships in the hospitality industry, making both Jin Jiang and Interstate stronger.” Yu Minliang, Jin Jiang Hotels’ Chairman, said in the statement.
Barclays Capital served as financial advisor to Interstate, BofA Merrill Lynch served as financial advisor to Thayer, and UBS Investment Bank served as financial advisor to Jin Jiang Hotels. Paul Weiss, Rifkind, Wharton & Garrison LLP served as legal advisor for Interstate. Hogan & Hartson LLP served as Thayer’s legal advisor and Baker & McKenzie LLP served as Jin Jiang Hotels’ legal advisor.