MIAMI & STAMFORD, Conn.–October 28, 2015–Interval Leisure Group (Nasdaq:IILG) (“ILG”), and Starwood Hotels and Resorts Worldwide, Inc. (NYSE:HOT) (“Starwood”) today announced that the Boards of Directors of both companies have unanimously approved a definitive agreement under which a wholly owned subsidiary of ILG will acquire and then merge with and into Vistana Signature Experiences (“Vistana”). The combination, which will follow completion of the planned spin-off of Vistana from Starwood announced on February 10, 2015, has a total value to Starwood of approximately $1.5 billion.
Vistana is a leading developer marketer and manager of 22 high-end vacation ownership resorts with more than 220,000 owners and a world-class team of more than 5,000 associates. As a result of this merger, the combined company will have a more diverse portfolio and a strengthened position as a leader in the vacation ownership industry with an expansive portfolio of approximately 200 managed resorts encompassing over 500,000 owners. The merger will bolster ILG’s vacation ownership portfolio by adding worldwide exclusive rights to use the Sheraton® and Westin® brands in vacation ownership, while allowing Sheraton Vacation Club and Westin Vacation Club owners to continue enjoying access to the Starwood Preferred Guest (SPG) program. In addition, ILG provides memberships to nearly two million consumer families through Interval International, one of its major operating businesses. The combined company will have the scale, global reach, assets, inventory, and sales and marketing infrastructure to support increased growth. It will also have an enhanced financial profile, with a strong balance sheet and substantial free cash flow from recurring fee-for-service revenues to drive sales and earnings growth.
“This transformational transaction creates significant value for the shareholders of both companies and positions us at the forefront of a rapidly evolving industry,” said Craig Nash, Chairman, President and CEO of ILG. “By bringing together ILG and Vistana, two companies with long histories of hospitality brand stewardship and leadership, we are creating a company with strong positions from which to offer highly attractive and complementary product offerings. We will continue to grow our full suite of brands, including Hyatt Residence Club, Sheraton Vacation Club and Westin Vacation Club, and the combined company will maintain an enhanced portfolio of properties, services and expertise to provide guests with the top, high-quality vacation ownership brands and best vacation experiences in the industry. In addition, with an even more diverse offering of leading properties and broader geographic reach and scale, ILG will strengthen its competitive position and ability to capitalize on revenue and profit growth opportunities over time. This combination further reinforces ILG’s balance sheet and conservative leverage profile so we may continue to prudently grow the business.”
Mr. Nash added, “We have a 15-year history of working with Vistana, and we look forward to continuing to collaborate with Vistana’s talented and experienced management team and associates as we seamlessly integrate our two companies.”
"We are delighted with this transaction and we have great respect for Craig, the ILG team and the company’s culture. We believe that this combination will create more value for our shareholders than a standalone path. Not only are the economics better, but being part of a larger organization ensures more growth opportunities for the business and our associates,” said Adam Aron, Starwood’s Chief Executive Officer on an interim basis.
Thomas Mangas, Chief Financial Officer of Starwood, added, "This is a financially compelling transaction which will result in a more diversified and recurring revenue mix for Starwood shareholders across a vertically integrated timeshare and exchange business. Vistana will be both complementary and core to the ILG organization, and we’re confident ILG will be an exceptional steward of Starwood’s well-respected brands. While Starwood has been focused on executing an asset-light strategy across the company, Vistana will benefit from ILG’s commitment to invest in new properties to drive increased growth. This transaction will better position the combined company for greater long-term growth, which will in turn create exciting opportunities for our teams.”
Substantial Financial & Strategic Benefits
- Stronger Financial Profile to Drive GrowthÂą:
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¹ The financial information in the tables above reflects historical, stand-alone results of ILG and Vistana and does not reflect any synergy or other adjustments with respect to the proposed combination. There can be no assurance that either ILG, Vistana or the combined businesses will be able to continue to generate the financial results described above. See “Cautionary Language Concerning Forward-Looking Statements” below for additional factors that could affect the financial results of ILG, Vistana and the combined businesses.
² Derived from ILG SEC filings. See Adjusted EBITDA reconciliation table on p. 10.
³ Derived from the pro forma data in Vistana’s Form 10 filed September 22, 2015. Includes $3 million related to financings that may or may not be incurred, as well as approximately $4 million of non-cash compensation. Adjusted EBITDA consistent with ILG’s calculation would be $129 million, excluding $4 million of non-cash compensation. See Adjusted EBITDA reconciliation table on p. 9.
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The combination will bring together ILG’s recurring fee-for-service revenues from its stable membership and exchange businesses and Vistana’s attractive pipeline of new vacation ownership projects, expansions and conversions, creating a company with greater scale and an enhanced long-term growth and free cash flow profile. The combined company will be uniquely positioned to pursue additional growth opportunities globally.
- A Leading Vacation Ownership Company with Complementary Product Offerings: As a leader in the vacation ownership industry, the combined company will have a balanced portfolio of high-end high quality brands. In the exchange and rental business this includes Interval International which provides memberships to nearly two million consumer families and offers vacation exchange through its network of 2,900 resorts in 80 countries. The vacation ownership business will include the Sheraton Vacation Club, Westin Vacation Club and Hyatt Residence Club brands, as well as the largest independent management portfolio of resorts in this space.
- Improved Financial Strength and Flexibility: The combined company will have a strong balance sheet with substantial debt capacity to support future growth opportunities, both organically and through potential acquisitions. Following completion of the transaction, the combined company is expected to have approximately 1.5x net debt to Adjusted EBITDA, excluding securitizations, and a significant portfolio of receivables available for securitizations to fund growth initiatives.
- Significant Cost Savings and Revenue Synergies: The transaction is expected to provide the opportunity for meaningful cost savings and revenue synergies, which are estimated to reach approximately $21 million three years from the closing of the transaction, and approximately $26 million five years from closing. These synergies are expected to result from ILG’s global corporate infrastructure, improved utilization of Vistana inventory through existing ILG channels and increased penetration of membership programs to Vistana customers. The companies expect cost savings will result primarily from efficiencies, rent consolidation and natural attrition.
- Enhanced Membership and Exchange Growth Opportunities: The combined company’s enhanced growth profile is expected to be supported by ILG’s membership and exchange business’ proven stability through business cycles. Vistana has 22 properties in top vacation destinations, and more than 220,000 owners, a vast majority of whom are currently members of Interval International. The combination secures Vistana’s high-demand inventory in the Interval International resort network, strengthening member retention and encouraging additional transactions. Vistana’s robust sales and marketing distribution capability will provide the combined company with a strong platform for fee-for-service, capital-light sales that would drive enhanced returns.
Transaction Details
The acquisition will be effected through a “Reverse Morris Trust” transaction pursuant to which Vistana, a wholly-owned subsidiary of Starwood is expected to be distributed tax-free to Starwood shareholders and simultaneously merge with a wholly-owned subsidiary of ILG, with Vistana remaining as a wholly-owned subsidiary of ILG. The combination will result in Starwood shareholders owning approximately 55% of the combined company on a fully diluted basis, with existing shareholders of ILG owning approximately 45% of the combined company. Following completion of the transaction, ILG expects to continue its current dividend policy.
The transaction values Vistana at approximately $1.5 billion based on ILG’s 20-day volume weighted price as of October 26, 2015, including an estimated $132 million cash distribution to be funded in connection with the merger. The cash distribution and expenses associated with the transaction are expected to be financed with new borrowings by Vistana.
In connection with the transaction Vistana will enter into an 80-year exclusive global license agreement for the use of the Westin and Sheraton brands in vacation ownership in addition to the non-exclusive license for the existing St. Regis and The Luxury Collection vacation ownership properties. Under the terms of the license agreement, Starwood will receive an annual base royalty fee of $30 million plus 2% of vacation ownership interest sales.
The merger is expected to be tax-free to Starwood shareholders and is anticipated to close in the second quarter of 2016, subject to customary closing conditions, including regulatory and ILG shareholder approvals. Liberty Interactive Corporation and certain ILG executive officers have entered into voting and support agreements in favor of the transaction, representing approximately 31% of ILG’s shares outstanding.
Governance, Leadership Team and Headquarters
Upon the closing of the merger, ILG’s Board of Directors will consist of 13 directors: nine current ILG directors and four Starwood director appointees.
ILG’s management team will retain their current positions, with Craig M. Nash continuing to serve as Chairman and CEO of the combined company, Jeanette Marbert as Chief Operating Officer and William Harvey as Chief Financial Officer. Vistana’s executive team, including Stephen G. Williams, Chief Operating Officer, and Heather McGill, Chief Financial Officer, will continue to lead Vistana.
Following the completion of the transaction, ILG will remain headquartered in Miami, Florida, and the Vistana business will remain headquartered in Orlando, Florida.
Advisors
Moelis & Company is serving as ILG’s financial advisor. Weil, Gotshal & Manges LLP is serving as legal counsel to ILG. Citigroup and Credit Suisse are serving as financial advisors to Starwood. Latham & Watkins LLP is serving as legal counsel to Starwood.
Conference Call
The two companies will host a joint conference call today at 8:00 A.M. Eastern Daylight Time to discuss this transaction, with access via the Internet and telephone. Investors and analysts may participate in the live conference call by dialing (888) 747-8864 (toll-free domestic) or (443) 957-1870 (international); Conference ID: 69619181. Please register at least 10 minutes before the conference call begins. A replay of the call will be available for 14 days via telephone starting approximately two hours after the call ends. The replay can be accessed at (800) 585-8367 (toll-free domestic) or (404) 537-3406 (international); Conference ID: 69619181. The webcast will be archived on ILG’s website for two weeks after the call. A transcript of the call will also be available on the website.
