Zell sparks hotel buyout rumors
As real estate magnate nears possible Starwood buyout, investors speculate on industrywide consolidation.
NEW YORK (Reuters) -- Starwood Hotels & Resorts Worldwide Inc. signed a confidentiality agreement with property magnate Sam Zell's Equity Group Investments LLC, according to a regulatory filing, sending hotel shares higher as investors anticipated takeover deals in the sector.
Such an agreement could be in preparation for Zell's firm taking a greater stake in Starwood, an analyst said, but no such intention was mentioned in the filing with the U.S. Securities and Exchange Commission Wednesday.
Equity Group Investments already owns 14.75 million Starwood shares, according to the filing, or about 8% of Starwood's outstanding shares, according to Reuters data.
Starwood's shares were up $2.96, or 16.5%, at $20.86 on the New York Stock Exchange Friday afternoon.
Starwood's shares have plunged more than 70% over the past 18 months, as the economic slowdown punctured the travel spending boom. The stock hit its lowest point in more than 10 years in November.
The market value of Starwood - which operates the W, Sheraton and St. Regis hotel brands - is now around $3.8 billion.
Talk of consolidation in the lodging sector has been rife in recent months as hotel companies' prospects have become uncertain, and their valuations have hit long-time lows.
Hotel and casino company stocks rose across the board Friday, amid a generally higher market, on hopes that takeover deals might be on the horizon.
Shares of hoteliers Wyndham Worldwide Corp (WYN) and Morgans Hotel Group Co (MHGC), along with casino operators Las Vegas Sands Corp (LVS) and Wynn Resorts Ltd (WYNN), all rose more than 10%.
"We are seeing speculative buying in the January (Starwood) calls as investors position for more gains in Starwood Hotels' shares," said Joe Kinahan, chief derivatives strategist at online brokerage thinkorswim Group in Chicago.
"The catalyst appears to be the Sam Zell news this morning. His Equity Group has signed a confidentiality agreement with Starwood Hotels, which is often a precursor to a merger or an acquisition. People want to follow the smart money and Zell is a very respected investor."
Zell made his fortune selling Equity Office Properties Trust for $23 billion in 2007. He subsequently led a deal to take newspaper publisher Tribune Co private. Tribune filed for Chapter 11 bankruptcy protection last month.
"With this large commitment by Zell's Equity Group Investments, investors obviously believe they will eventually do something to enhance shareholder value," said William Lefkowitz, option strategist at brokerage firm vFinance Investments.
The confidentiality agreement will "facilitate the sharing of information" between Starwood (HOT, Fortune 500) and Zell's Equity Group, according to the filing, but did not specify the purpose.
"We are delighted that you are showing such confidence in the company," Starwood wrote to Equity Group, in a letter appended to the filing. "We agree to make available to you ... certain confidential information about the company," relating to Starwood's operations and assets, the letter said. 
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