October 28, 2015 / 10:46 AM / 3 years ago

Interval Leisure to buy Starwood's vacation ownership business

(Reuters) - Interval Leisure Group IILG.O said it would buy hotel operator Starwood Hotels & Resorts Worldwide Inc’s HOT.N vacation ownership business, which it valued at about $1.5 billion.

ILG, which provides non-traditional lodging such as vacation rentals, said a unit would buy the business, Vistana Signature Experiences, after Starwood - which itself has been seeking a buyer - spins it off.

The deal will give ILG exclusive rights to Starwood’s Sheraton and Westin brands in the vacation ownership market.

On completion of the deal, Starwood shareholders will own about 55 percent of the combined vacation ownership business on a fully diluted basis and ILG shareholders will own the rest.

Reuters reported on Tuesday that China’s sovereign wealth fund and two Chinese companies had expressed interest in buying Starwood, joining other potential suitors from around the world.

Starwood shares rose as much as 12.5 percent to $77.10 on Tuesday after the Wall Street Journal first reported that the Chinese companies were interested in Starwood, which has a market value of about $13 billion.

Starwood, which also owns the St. Regis brand, said in February that it would spin off Vistana, which operates high-end time-share resorts, as a part of its “asset-light” strategy to focus on operating properties instead of owning them.

The deal is expected to be tax-free to Starwood shareholders and close in the second quarter of 2016, the companies said.

Starwood, whose shares were up 2.8 percent at $76.90 in premarket trading, also reported a better-than-expected third-quarter profit, driven by higher occupancy rates.

Moelis & Co was ILG’s financial adviser for the Vistana deal. Citigroup and Credit Suisse advised Starwood.

Reporting by Arunima Banerjee and Abinaya Vijayaraghavan in Bengaluru; Editing by Savio D'Souza and Ted Kerr

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