Starwood to Buy Westin for $1.57 Billion

Starwood Lodging Trust on Tuesday said it had agreed to buy Westin Hotels & Resorts for $1.57 billion in cash, securities and assumed debt, the latest takeover to hit the hotel industry as it enjoys record profits.

The combination would create the world’s third-largest hotel company, with 219 hotels in 38 states and 23 countries and more than $4 billion in annual revenue. It’s also a windfall for Starwood Chairman and Chief Executive Barry Sternlicht, who led an investor group that bought Westin two years ago for $537 million.

Seattle-based Westin--which owns a collection of luxury hotels that includes the Westin Bonaventure in downtown Los Angeles and the St. Francis in San Francisco--would give Starwood a well-known upscale hotel brand to franchise and use in its string of more than 100 hotels operating under the Sheraton, Omni and Hilton flags, among others. “What [Starwood] didn’t have was the brand,� said Brad Cohen, an analyst at Sands Bros. & Co. “This gives them probably the premier brand in the country. Actually, one of the top hotels in the world.�

Starwood would assume the Westin name and convert at least 20 of its hotels to the Westin brand shortly after the transaction, expected to be complete by February.

On Wall Street, Starwood shares rose 81 cents on Tuesday to $50.25 on the New York Stock Exchange after trading as high as $52.63. The stock has nearly doubled over the last year.

Starwood, which moved its headquarters last year to Phoenix from Los Angeles, will boost its presence in Southern California when it completes the acquisition. In addition to the Bonaventure--the largest hotel in the region--Westin properties include the Westin South Coast Plaza in Costa Mesa as well as hotels in Century City, the Los Angeles Airport area and downtown San Diego.

Starwood is one of only four “paired share� real estate investment trusts, or REITs, a status that allows it to both own real estate and engage in operating businesses without having to pay corporate income taxes.

The status will enable Starwood to keep whatever income Westin was paying in taxes, giving it an immediate economic advantage over such competitors as Hilton Hotels Corp. or Marriott International Inc. In addition to the REIT benefit, analysts praised the combination of Starwood’s financial savvy with Westin’s operating and marketing expertise.

“Westin was a strong brand, but this makes it a player with the largest, most prestigious names in the industry,� said Bjorn Hansen, head of Coopers & Lybrand’s hospitality group.

Starwood will pay $178 million in cash and assume about $1.03 billion of debt.

The deal is expected to close by Jan. 31, subject to shareholder and regulatory approval. Starwood said it expects the deal to add to its 1998 funds from operations. Combined systemwide yearly revenue is expected to exceed $4 billion.

The current owners of Westin include affiliates of Starwood Capital Group and Goldman Sachs, Edward Thomas Cos. and Nomura Securities Co.

The purchase is the latest in a wave of mergers and acquisitions sweeping the U.S. hotel industry, which is expected to report annual revenue of $58 billion this year.

Through the first half of the year, lodging industry mergers and acquisitions more than doubled to $4.1 billion from a year earlier.