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Starwood acquisition would add prestigious names to Six Continents portfolio

The reported purchase offer by Six Continents Hotels PLC for Starwood Hotels & Resorts Worldwide Inc. doesn’t surprise industry observers. The London-based hotel company has a large amount of cash to spend and has been on a voracious search for acquisition opportunities this year.

Six Continents (NYSE:SXC) has placed a $7.6 billion bid on the table for White Plains, N.Y.-based REIT Starwood Hotels (NYSE:HOT), according to a recent article in The Sunday Telegraph in London. The acquisition of White Plains, N.Y.-based Starwood Hotels would add more than 700 hotels to Six Continents’ hotel portfolio. Six Continents owns, manages, leases or franchises more than 3,260 hotels.

Although Six Continents has a much bigger portfolio, Starwood owns the more prestigious brands. Six Continents owns Holiday Inn, Crowne Plaza, Holiday Inn Express, Staybridge Hotels and Inter-Continental brands. By purchasing Starwood, Six Continents would add Sheraton, St. Regis, W and Westin brands to its stable.

The reported move to acquire Starwood comes three months after Six Continents withdrew its bid to buy Dallas-based Wyndham International Inc. after lengthy negotiations.

"They have always had an eye on Starwood, and would much rather have their portfolio and brands [than Wyndham’s]", said Rod Petrick a managing director and lodging analyst for Legg Mason Wood Walker Inc.

The two hotel companies have declined to comment on the reported purchase offer. "We do not comment on market speculation and rumor," said Autumn Murray, communications manager for Six Continents at its North American headquarters in Atlanta.

Bass PLC switched the name of Bass Hotels & Resorts to Six Continents over the summer after selling its brewery operation. At that time, the hotel company announced its intention to expand aggressively in North America, Europe and the Asia-Pacific region. The $3.3 billon sale of Bass Brewers provided plenty of cash to act on those plans.

"Picking up the Sheraton and St. Regis brands would really help fill them out in the U.S. and Europe," Petrick said.

Petrick compared the potential Starwood purchase to Hilton Hotels Corp.’s $4 billion acquisition of Promus Hotel Corp. in 1999. Before the purchase, Beverly Hills, Calif.-based Hilton Hotels was known mainly for its Hilton brand, while Six Continents is associated strongly with Holiday Inn. With the Promus purchase, Hilton added several well-known brands, including Embassy Suites, Doubletree and Homewood Suites.

"I think you need that complement of brands to compete in this kind of environment," Petrick said. "They [Six Continents] don’t have a full complement of brands."

Starwood’s stock price has increased by more than $2 per share since reports of the purchase offer began circulating earlier in the week. The company’s stock price closed at $29.54 on Thursday, down from its 52-week high of $40.89 and up from its 52-week low of $17.10. The stock price for Six Continents has held steady between $10.60 and $10.70 this week. It’s 52-week high was $12.00.

Although the hotel companies are dismissing the reports of the purchase discussions, Petrick thinks there is a decent chance the two sides will close a deal soon.

"I think it’s more than a 50-50 proposition," he said.

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