Marcato Capital Management Releases Letter And Presentation To Intercontinental Hotels Group Shareholders
- Marcato Believes Strategic Combination Could Yield Premium Upwards of 100% Above Current Share Price
- Urges IHG's Board to Conduct Formal Review of Strategic Alternatives to Enhance Shareholder Value
SAN FRANCISCO, Nov. 11, 2014 /PRNewswire/ -- Marcato Capital Management LP ("Marcato"), a San Francisco-based investment manager that owns approximately 4.0% of the outstanding shares of Intercontinental Hotels Group plc (LSE: IHG; NYSE: IHG), today released a letter to IHG shareholders along with a detailed presentation outlining the results of an independent evaluation of various potential strategic alternatives conducted by Houlihan Lokey. The letter and presentation can be viewed at www.IHGvaluecreation.com.
Marcato encourages all of its fellow shareholders to review the presentation* carefully and, if they find the content compelling, to reach out to the IHG Board and management and urge them to conduct a full and formal review of strategic alternatives that will create significant, long-term shareholder value.
A full text of the letter follows:
November 11, 2014
Dear Fellow IHG Shareholders,
As you know, Marcato Capital Management LP ("Marcato") is one of the largest shareholders in Intercontinental Hotels Group plc ("IHG" or the "Company"), owning approximately 4% of shares outstanding. We believe that IHG is an attractive business with a unique, limited-time opportunity to create significant long-term shareholder value.
Following media reports of a £6 billion unsolicited offer that was quickly rebuffed by the Board of Directors of IHG (the "Board"), we grew concerned that the Board was not giving due consideration to the strategic alternatives available in the current industry and M&A environment. We hoped to engage in a constructive dialogue with the Board and IHG's management regarding a process to explore potential options for enhancing long-term shareholder value. However, IHG has dismissed our suggestions and it appears they have neither solicited offers nor performed the rigorous analysis necessary to evaluate potential options to achieve this goal.
Given our lack of confidence in the Board's conduct, Marcato retained Houlihan Lokey in August 2014 as its financial advisor to evaluate opportunities for enhancing long-term shareholder value at IHG, including capital structure and/or capital allocation improvements and strategic combinations. Houlihan Lokey has conducted extensive research and a comprehensive strategic review.
After receipt of this evaluation, Marcato concluded that on a standalone basis, IHG will not be able to provide shareholder value comparable to what could be achieved through a combination with another major hotel operator. In fact, based on reasonable assumptions, Marcato found that an equity combination could deliver a premium upwards of 100% over IHG's current share price, creating a powerful and diversified hotel management company and further enhancing IHG's value by:
- Increasing growth opportunities through expanding the scope and scale of the business;
- Generating substantial business and financial synergies; and
- Producing long-term pro forma earnings accretion and share price appreciation.
Most importantly, in the event of a transaction, IHG's shareholders would likely maintain meaningful ownership of any combined entity, therefore enabling us to participate in the long-term upside of the larger, stronger company.
To ensure the Board and IHG's management are acting responsibly and in the interests of all IHG shareholders, we feel compelled to share the analysis*. The presentation is available at www.IHGvaluecreation.com.
As the analysis highlights, this is a unique and ideal time for IHG to consider strategic alternatives – the hospitality industry and M&A environment are both strong, interest rates are at record-lows, there are substantial revenue and expense synergy opportunities, and we believe there is likely to be interest from several potential strategic partners.
It is important to note that we believe it would be highly unlikely for another major industry player to commit the time and resources necessary to put forth a combination proposal without a sense that it will be seriously considered and evaluated by IHG.
Ultimately, IHG's Board has an ongoing duty to consider whether the Company's current business plan is likely to create as much or more value than can be created through a combination with another major hotel operator. Our analysis demonstrates that a combination could result in immediate, significant, and abiding shareholder value -- much more than is likely to be created under IHG's current business plan.
The bottom line: The opportunities created by today's favorable market conditions may not be available in the future. Therefore, we urge the Board to immediately embark on a full review of strategic alternatives, including engaging with synergistic partners, before this window of opportunity closes.
Sincerely,
/s/
Richard T. McGuire
Managing Partner
Marcato Capital Management LP
For further information, contact:
Jonathan Gasthalter
212-687-8080
* For regulatory reasons this presentation is only available to certain categories of IHG shareholders
Houlihan Lokey is acting for Marcato Capital Management LP and no one else in connection with the matters referred to above and will not be responsible to anyone other than Marcato Capital Management LP for providing protections afforded to clients of Houlihan Lokey or for providing advice in relation thereto.
The information, beliefs and/or opinions in this document, and the letter and presentation to which it refers, are provided for information only. Nothing in those documents is, or should be construed as, investment advice or as a recommendation, invitation or inducement to engage in any investment activity, and should not be used as the basis for any investment decision. Any information, beliefs, and/or opinions provided in those documents are given as of the date of each document respectively, and are subject to change without notice. Marcato Capital Management LP does not accept responsibility or liability (in the absence of fraud) for any errors in or omissions from the information, beliefs, and/or opinions included in those documents.
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