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Marriott International Inc/DE
Starwood Hotels & Resorts Worldwide Inc
Blackstone Group LP
InterContinental Hotels Group Plc (IHG), the world’s largest hotel operator by rooms, rose the most in more than eight months after activist investor Nelson Peltz’s Trian Fund Management LP bought a stake in the company.
InterContinental advanced 6.1 percent in London trading after the Denham, England-based company said in a statement that Peltz’s funds own 4.27 percent of its shares. InterContinental had the biggest gain today among stocks on the FTSE 100 Index (UKX) of the most valuable companies on the London Stock Exchange.
“There will be consolidation in the industry,” Wyn Ellis, an analyst at Numis Securities Ltd., said by phone today. “InterContinental will be attractive as it trades at such a discount to its U.S. rivals Starwood and Marriott.”
A bid by Bethesda, Maryland-based Marriott International Inc. for InterContinental would be compelling, Ellis said in a research note May 29. InterContinental trades at about 13 times its earnings per share, while Marriott trades at 31 (MAR) times its earnings per share, according to data compiled by Bloomberg. Stamford, Connecticut-based Starwood Hotels & Resorts Worldwide Inc. (HOT) trades at 26 times its earnings per share.
InterContinental advanced 88 pence to 1,526 pence at the 4:30 p.m. close, giving the company a market value of 4.4 billion pounds ($6.8 billion). The shares rose the most since Sept. 14.
Peltz, 69, “will be looking at two things: consolidation in the sector and the potential to sell the remaining property assets of the group,” Jeffrey Harwood, an analyst at Oriel Securities Ltd. in London, said by phone. “Flagship hotels in London and Hong Kong are sought-after assets at the moment.”
InterContinental is benefiting from rising demand in emerging markets such as the greater China region, which accounts for about 13 percent of revenue. About 30 percent of its global expansion over the next three to five years will be in the region. InterContinental has risen by almost 30 percent since the start of the year.
Peltz, who is known for pushing companies to increase their share prices, is the largest investor in fast-food chain Wendy’s Co. His previous activist investments include ketchup maker H.J. Heinz Co., Kraft Foods Inc. and luxury retailer Tiffany & Co.
Trian, the hedge fund run by Peltz, had about $3.4 billion in assets under management as of Feb. 1, according to a regulatory filing in March. The fund took a 7.3 percent stake in Ingersoll-Rand Plc earlier this month and met with the industrial company’s management about ways to boost the underperforming stock, including restructuring businesses.
InterContinental’s first-quarter pretax profit rose 13 percent to $106 million, according to a May 9 statement, beating analysts’ estimates. Revenue increased to $409 million from $396 million a year earlier.
The company’s average revenue per room, an industry measure of occupancy and rates, rose 7.9 percent in the U.S. last year, boosted by a renovation of its Holiday Inn chain.
Private-equity buyers like Blackstone Group LP (BX) have been attracted to the lodging industry because of the returns. The New York-based private-equity firm that manages $48 billion in real estate assets agreed to buy the Motel 6 lodging chain from Accor SA (AC) for $1.9 billion on May 22. Blackstone, which owns Hilton Hotels, also bought U.K.-based Mint Hotels in a $950 million deal announced in September.
Hotels are “becoming more attractive to an even more diverse audience of investors and therefore the market is opening up more and more to investment,” Gerard Nolan of London-based broker Gerard Nolan & Partners said in October. Nolan has been involved in the sale of more than 350 hotels.
InterContinental Hotels Group franchises, leases, manages or owns more than 4,500 hotels and more than 661,000 guest rooms in almost 100 countries and territories. It has more than 1,000 hotels in its development pipeline, the company said in today’s statement.
Peltz, Trian’s founder and chief executive officer, declined to comment on InterContinental, spokeswoman Anne Tarbell said.
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