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Hotel chain La Quinta bought for $2.28 billion

Hotel chain La Quinta Properties Inc. Wednesday said it agreed to be acquired for $2.28 billion in cash by the Blackstone Group, as lodging companies continue to lure deep pocketed investors.
/ Source: Reuters

Hotel chain La Quinta Properties Inc. Wednesday said it agreed to be acquired for $2.28 billion in cash by the Blackstone Group, as lodging companies continue to lure deep pocketed investors.

The deal is the latest in a series of recent mergers and acquisitions in the sector. Hotel companies have attracted investors because of strong demand that has boosted room rates as well as the potential value of their real estate.

The takeover price is $11.25 in cash per paired share, representing a 37 percent premium over Tuesday’s closing price of $8.22 a share, the company said. Including about $800 million in debt and additional transaction costs, the deal is worth $3.4 billion, the companies said.

In June, Blackstone bought hotel owner and franchiser Wyndham International Inc. for $1.44 billion in cash. It later agreed to sell the Wyndham brand and franchise system to leisure conglomerate Cendant Corp.

But La Quinta Chairman and Chief Executive Francis “Butch” Cash said Blackstone plans to keep intact the chain of more than 590 owned and franchised limited-service hotels, which also operate under the Baymont, Woodfield and Budgetel brands.

“Blackstone has no intention of selling off the real estate,” he said in a conference call with reporters. “They love the brand, they love our franchising program and they’ll probably want to accelerate” its growth.

A representative for Blackstone, among the largest private equity firms worldwide, declined to comment. It was unclear how long it intends to hold onto the investment.

Cash said Blackstone would profit by eliminating the overhead costs La Quinta pays as a public company.

“They’ve also indicated that they intend to invest $100 million over the next three years in our properties,” he said. ”By upgrading the properties they should see a nice kick in occupancy and rates.”

'A good value'
CIBC analyst David Katz said Blackstone could combine La Quinta with some of its other major hotel investments, which include Boca Resorts and Extended Stay America Hotels, with an eye to eventually floating them on the market.

The private equity firm’s investment in La Quinta is a step away from the high-end segment that Blackstone has focused on.

“Given our recent comments on the low probability that La Quinta would be able to execute an acquisition and the relatively modest near-term growth outlook, we believe this proposed transaction represents a good value for shareholders,” Katz said in a research note.

He valued the deal at 12.5 times enterprise value/earnings before interest, taxes, depreciation and amortization, which he said compared with a multiple of 9.9 times EV/EBITDA for Hilton Hotels Corp. , the best comparison among major U.S. hotel chains, he said.

“It reassures the investment community that private equity is still very interested in investing in the hotel business,” said Robert LaFleur, an analyst at Susquehanna Financial Group. ”That had come into question in the past three or four months” on concern about high fuel prices and consumer spending.

Aggressively investing
In another recent sign of interest in the sector, billionaire investor Carl Icahn earlier this week announced that he had taken a 9.3 percent stake in Toronto-based Fairmont Hotels & Resorts Inc. , urging it to consider strategic alternatives including a sale.

The Blackstone Group has $14 billion of assets under management. Private equity firms buy companies, restructure the operations, then sell them later at a premium.

Blackstone’s Real Estate Group has raised six funds totaling around $8 billion in equity, aggressively investing in the hotel sector.

La Quinta was advised on the transaction by Morgan Stanley, while Blackstone was advised by Bear Stearns, Deutsche Bank and Merrill Lynch.