Marriott reaches deal with 2 firms over hotels Patriot American, Interstate to merge

Lodging

May 28, 1998|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Marriott International Inc. struck a definitive deal yesterday regarding future ownership and operations of 62 Marriott hotels, paving the way for completion of a $2.1 billion merger between Patriot American Hospitality Inc. and Interstate Hotels Co.

The Bethesda-based hotel company had sued the pair in U.S. District Court in Baltimore to block the merger, because Patriot American intended to convert 10 Marriott hotels owned by Interstate to its Wyndham brand. Marriott contended its franchise agreements with Interstate should be honored, despite the merger.

"We are pleased to settle this dispute and believe that this agreement is a creative solution to issues raised by the planned merger," said Steve Joyce, Marriott's senior vice president of franchising.

"The parties involved understand and accept that Marriott cannot allow a competitor, such as Wyndham, to manage Marriott-branded hotels," said Joyce, whose company controls 1,600 properties in the United States and 53 other countries. "This agreement produces a solution that works for all of us."

Under terms of the agreement -- tentatively reached earlier in the month on the eve of a trial in the case -- Patriot American will spin off an independent, publicly traded company encompassing Interstate's third-party management business following its merger. The new company, which will manage 42 Marriott properties, will be valued at about $70 million, Patriot American said.

In addition, Patriot American agreed to transfer to Marriott management of 10 Marriott hotels owned and managed by Interstate; amend existing contracts to give Marriott rights of first refusal on future sales of certain Marriott-branded hotels owned by Patriot American; and amend territorial restrictions allowing Marriott to operate additional hotels in certain markets. In exchange, Marriott will let Patriot American convert 10 Marriott-branded hotels owned by Interstate to the Wyndham flag; and convert other, existing Marriott hotels in certain markets to the Wyndham brand.

Perhaps most importantly, though, Marriott has agreed not to interfere with the Patriot American-Interstate merger, which is scheduled for completion by June 7. Combined, Patriot American and Interstate will own or manage 473 hotels.

"We believe we have come to an agreement which satisfies our objectives and preserves for our shareholders, and those of Interstate, the substantial benefits of this merger," said Paul A. Nussbaum, Patriot American's chairman and chief executive.

Marriott and Patriot American will each own 4 percent of the spun-off company, and hold two seats each on its nine-seat board. The balance of the shares will be distributed to Patriot American's shareholders.

Pub Date: 5/28/98

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