Patriot agrees to buy Interstate Hotels Corp. Deal for $2.1 billion will help company expand Wyndham chain

Acquisitions

December 03, 1997|By BLOOMBERG NEWS

DALLAS -- Patriot American Hospitality Inc. agreed yesterday to buy Interstate Hotels Corp. for $2.1 billion in cash, stock and assumed debt, giving it more upscale hotels to help build the flagship Wyndham chain it is buying.

The real estate investment trust will pay $37.50 a share in cash and stock and take on $785 million in debt.

Interstate is the nation's largest independent hotel operator, with 222 hotels and resorts with 45,000 rooms.

The purchase is the biggest yet in Chairman Paul Nussbaum's $5 billion buying spree that will give Patriot 455 hotels, up from 45 a year ago. The company will focus on expanding the Wyndham chain.

"They have moved into a cycle where the flagship needs to be developed," said Paul Keung, an analyst at Deutsche Morgan Grenfell who rates Patriot American stock a "buy."

Shares of Pittsburgh-based Interstate fell 81.25 cents to close at $35.9375 yesterday in trading of 1.4 million, more than 18 times its three-month daily average. The stock had jumped 17 percent the past month on takeover speculation.

Patriot's shares fell 75 cents to close at $30.8125.

The move is the latest in a record year for hotel purchases.

About $43 billion in acquisitions have been announced this year, said Arthur Adler, a partner at Coopers & Lybrand LLC's lodging and gaming group. That easily eclipses the $8 billion in completed sales last year.

The purchases have been sparked in part by several REITs, such as Patriot American, that have a special tax structure. REITs, or real estate investment trusts that own commercial real estate, can shelter some income from taxes if they pay 95 percent of net income as a dividend.

With the completion of all its purchases, Patriot American will have 455 hotels with about 103,000 rooms that it owns, leases, manages or franchises.

Dallas-based Patriot will pay cash for 40 percent of Interstate's outstanding shares and exchange its stock tax-free for the remaining 60 percent.

The centerpiece of Patriot American's plans is Wyndham Hotel Corp., which it expects to acquire in the next month or so for $1.1 billion.

Patriot American said it reached a tentative agreement with Marriott International Inc. that would allow it to convert 10 Marriott-brand hotels acquired with Interstate to the Wyndham name.

In return, Marriott will assume management of 10 Marriott hotels franchised by Interstate.

With Interstate, Patriot American will own outright another 40 mostly upscale hotels that it could put under the Wyndham name.

The company hopes to boost the number of Wyndham hotels to 150 by the end of 1998 from 106 now.

Patriot American also is acquiring the hotel businesses of Carnival Hotels & Resorts, Gencom Hospitality and WHG Hotels & Casinos.

Pub Date: 12/03/97

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