Hyatt in advanced talks to acquire Starwood Hotels

Starwood Hotels and Resorts Worldwide seems to have become a potential acquisition target after it appointed advisory firm Lazard, in April, to explore strategic options. The company, which earns a majority of its revenues from emerging countries, has witnessed poor revenues in recent times following which it has come under pressure from its hedge fund investors to break up or sell the company.

Harry Curtis, an analyst at Nomura, perceives any potential deal to be valued at more than $17bn, which is more than Starwood's current market capitalisation, considering "assets like Starwood do not come up for sale often".

The Pritzker family-led Hyatt Hotels, which is reportedly in advanced talks to acquire its larger peer, Starwood, is said to be a front runner to seal the deal. If Hyatt were to acquire Starwood, it would add brands such as the Sheraton, St Regis and W to its portfolio. This purchase, which will be financed through a combination of stock and cash, could be announced in the next 10 days.

Hyatt, with its 41 hotels that have 20,000 rooms, is one-fifth the size of larger peers such as Hilton and Marriott. A deal with Starwood would make it a formidable competitor, increasing its room strength to more than 500,000.

Starwood also seems to have caught the eye of three Chinese firms, namely lodging giant Shanghai Jin Jiang International Hotels (Group), Hainan Airline's parent - HNA Group and sovereign-wealth fund China Investment Corporation.

The Beijing government, amid concerns that these three companies could increase the price by over-bidding each other, has apparently said that only one domestic company would make a final bid to acquire the Connecticut-based hotel which has more than 1,200 properties worldwide. Accordingly, they have all presented a separate proposal to their government and Beijing is expected to make its selection in the next few weeks. If the deal were to go through, it would be the largest purchase of an American company by a Chinese firm, according to data tracker Dealogic.

Starwood's net income has dropped to $88m in the latest quarter from $109m a year ago. It has also been lagging behind its peers such as Hilton and Marriott in terms of adding more hotels with its brands. However, Robert LaFleur, a hotel analyst with JMP Securities said that Starwood was an attractive acquisition target considering its portfolio of global well-known brands and its large footprint both in the US and outside.