Starwood Hotels...a HOT takeover target? Bidding starts at $90 per share!
Today, shares of Hilton Hotel (ticker symbol: HLT) soared 26% after word broke that the company agreed to be bought by the Blackstone Group for $20.1 billion in cash. The deal is valued at $26 billion including debt. This proposed acquisition represents a 32% premium over Tuesday's closing price. With this transaction setting a form of precedent, I am a believer that the next target in this space is Starwood Hotels (ticker symbol: HOT). Starwood is the corporate holding firm for the St. Regis Hotels, the luxurious W Hotels, Westin and Sheraton Hotels.
Now lets review the numbers of today's announced deal and what an "implied" buyout price might be for HOT based on Blackstone's offer for HLT:
Blackstone Offer for Hilton
Given the Blackstone Offer Price for HLT of $47.50 per share the stock closed today at $45.50. Based on today's closing price, the price-to-earnings multiple (2008 EPS) stands at 29.6x.
Keep in mind the following: Starwood's capital structure is less reliant on debt as is Hilton. Hilton sits on about $7 billion in debt (debt-to equity ratio of 1.9) whereas Starwood has approximately $2.61 billion in debt giving it debt-to-equity ratio of 0.83. This would, potentially, make it a a very good target for LBO firms. An LBO firm could step in and immediately refinance HOT's current debt (as is done in most cases) and issue senior debt based on HOT's assets.
With that said and based on my "behind the envelope" calculations, I would predict any offer for Starwood to look something like this...
Buyout Offer for Starwood
Based on the multiples listed above and a 2008 EPS of $3.01 the implied price of a 100% buyout of HOT's equity => $90.00 per share
This price would value the deal at approximately $21.6 billion including debt. Effectively a 20% premium on today's share price to get a deal done....
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