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Why Marcato hires adviser for InterContinental strategic review

Smita Nair

Marcato Capital goes activist on InterContinental Hotels Group (Part 1 of 6)

Marcato hires an adviser for strategic review of InterContinental

Activist investor Mick McGuire’s Marcato Capital Management said it has hired an investment bank to carry out a “full strategic review” at InterContinental Hotels Group PLC (IHG). The San Francisco-based hedge fund that owns ~4% of the outstanding shares of Intercontinental Hotels Group said it has retained Houlihan Lokey as a financial adviser who will conduct a strategic review at IHG that will focus on various alternatives including improvement of the hotel’s capital structure or capital allocation and strategic transactions.

InterContinental Hotels Group, which is incorporated in the UK, franchises, leases, manages, or owns over 4,700 hotels and 688,000 guest rooms in nearly 100 countries and territories, with more than 1,100 hotels in its development pipeline. The company owns a broad portfolio of nine hotel brands including InterContinental Hotels & Resorts, Hotel Indigo, Crowne Plaza Hotels & Resorts, Holiday Inn Hotels & Resorts, Holiday Inn Express, Staybridge Suites, Candlewood Suites, EVEN Hotels, and HUALUXE Hotels and Resorts.

A statement from the hedge fund further said, “Marcato believes current, favorable market conditions presently exist to significantly enhance IHG shareholder value, which may not be available in the future.  As part of these efforts, Marcato intends to engage in direct dialogue with IHG’s Board of Directors and management with respect to the merits of its proposals, as well as broad discussions with IHG shareholders and industry participants.”

News reports noted that Marcato invested in IHG in May after the hotel company reportedly rebuffed a $10 billion takeover approach from a U.S.-based suitor. The bidders were rumored to be Wyndham Worldwide (WYN) and Starwood Hotels (HOT). Both Wyndham and Starwood are part of the iShares U.S. Consumer Services ETF (or IYC) and the Consumer Discretionary Select Sector SPDR Fund (XLY). InterContinental Hotels Group, Wyndham, and Starwood are members of the iShares S&P Global Consumer Discretionary ETF (RXI).

According to a profile page on Value Investing Congress, Marcato Capital manages a select number of passive and activist investments across all industries with a primary focus on opportunities in middle-market public equities. Founder Mick McGuire’s previous stint was with Pershing Square Capital Management. Newswires reported that the hedge fund was one of 2013′s top performers with a 26.16% return, and it has $2.5 billion in assets under management (or AUM). The fund’s investments include Sotheby’s (or BID) and Dillard’s (or DDS).

Continue to Part 2

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