Marriott Vacations Worldwide Corp will buy timeshare operator ILG Inc for $4.7 billion, the companies said on Monday (April 30), grabbing the chance to merge operations and brands spun out of Starwood and Marriott hotels.
ILG serves some 2 million members through various networks and has faced pressure from investor FrontFour Capital Group, which has been urging a sale to cash in at a time when US stock valuations are high and global travel demand is booming.
The combined company will have 108 properties and seven upscale brands, including ILG's Hyatt, Westin and Sheraton vacation ownership brands, giving it more scale to compete with Hilton Grand Vacations Inc and Bluegreen Vacations Corp .
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ILG's stock rose about 5% on news of the deal, while Marriott Vacations — paying $14.75 in cash and 0.165 of its own shares for each ILG share — slid 9.2%.
"With the combination of the hotel groups – Starwood and Marriott – it only makes sense for the timeshares that operate those brands to merge," Oppenheimer analyst Ian Zaffino said, adding that "timeshare growth is solid."
Hotel chain Marriott International Inc bought Starwood Hotels & Resorts Worldwide Inc about two years ago in a $12 billion deal, months after Starwood spun off its timeshare business and merged it with ILG. Marriott spun off its timeshare business in 2011.
Marriott Vacations' deal for ILG comes as the timeshare industry seeks to improve occupancy rates and shed its image of locking customers into complex contracts, in the hope of becoming a more popular holiday option for many vacationers.
The merger is expected to add to Marriott's earnings and save at least $75 million in costs.
"We see potential growth from the enhanced marketing capabilities across the expanded portfolio and owner and guest network that we will have post closing," Marriott Vacations chief executive officer Stephen Weisz said on a conference call with analysts.
Marriott's board of directors will be expanded to include two members from ILG's board.
According to Reuters' calculations, the deal price represents a nearly 19% premium to ILG's closing price on April 13, the day before Reuters reported that the two companies were in advanced talks for a deal.
JPMorgan was Marriott's exclusive financial adviser, while Goldman Sachs and Moelis & Co advised ILG.