Starwood Hotels Buyout: John Paulson Loses…. Again

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Starwood Hotels (NYSE: HOT) announced it was up for sale back in April when it announced ti was looking into strategic alternatives. A move that added about 10% to its market cap and sent the stock close to $90.

However, it’s been a rocky ride since then. In July, it was rumored that Intercontinental Hotels (NYSE: IHG) was an interested buyer. In October, it was Hyatt (NYSE: H) that was interested.

Now, Starwood officially has an agreement with Marriott (NYSE: MAR) to be bought. Still — the public markets aren’t happy, with shares of Starwood down 7% on the news. The stock is now down 18% since it first announced the strategic alternatives initiative in April.

The deal is valued at $12.2 billion and will be a global growth catalyst for both brands. It’ll also create the largest hotel chain in the world. The deal will mean that Marriott owns upwards of 5,500 hotels across the globe.

The offer price is $72.08, with Starwood trading just around $70.60. Marriott shares have fallen a percent or two on the news. This deal is expected toclose by the middle of 2016 — meaning there’s only a small arbitrate spread here.

Shareholders for Starwood will get $0.92 for every Marriott Class A share and $2 for every share already held. These shareholders will also get $7.80 for every share from Starwood’s timeshare business, which consequently merged with Interval Leisure Group Inc. months ago.

Marriott will be adding 3 Starwood members to its board, which now has 14 board members.

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Hedge fund winners: The big winner here is John Paulson, who a 12 million share stake during 2Q. The big question is; with 13F season upon us, did Paulson dump his shares in 3Q. We’ll know for sure later today. Even when Paulson wins, he loses.

Earlier this year, the thesis was that Senator Investment Group was involved at Starwood, which peaked our interest. Starwood was already spinning off its vacation properties business, but was ripe for a takeout as consolidation is needed in the hotel to help keep hotel pricing high and to fend off the likes of Airbnb. All in all, a negative for recent Starwood shareholders, but a positive for the industry — and although Hyatt missed out on buying Starwood, there’s still Hilton out there. Don’t forget Intercontinental — U.K. based — would provide tax inversion benefits.

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