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Marriott Vacations Worldwide to buy ILG for US$4.7b

Washington

MARRIOTT Vacations Worldwide has agreed to buy ILG for about US$4.7 billion in a stock-and-cash deal, creating the largest luxury brand for timeshare vacation resorts.

ILG investors will receive US$14.75 in cash and 0.165 of Marriott Vacations common stock for each of their shares, the companies said in a statement.

The deal represents a premium of about 13 per cent, based on the two companies' closing share prices last Friday. The purchase is expected to result in US$75 million of annual savings within two years.

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ILG had been facing activist pressure since last year to merge with a competitor.

Last May, FrontFour Capital disclosed a 2 per cent position in Miami-based ILG and simultaneously urged it to combine with Marriott Vacations.

The firm in January nominated four directors to ILG's board ahead of its annual meeting in May.

In February, in a public letter, the activist again urged the board to engage in good faith discussions with Marriott Vacations.

FrontFour said that refusal to "entertain such a compelling transaction" would "call into question the existing board's ability to satisfy its fiduciary duties".

The combined firm will have revenue of US$2.9 billion and own more than 100 vacation properties around the world. It also will have exclusive access to the Marriott International and Hyatt Hotels loyalty programmes for vacation ownership.

For shareholders, the deal "provides them with immediate and compelling cash value and the opportunity to meaningfully participate in the long-term growth potential of a powerful combined company", ILG's chief executive officer Craig Nash said in the statement.

"The strategic rationale for this transaction is clear. Combining these two highly complementary businesses will create an industry leader with enhanced scale and a broader product portfolio that will have great benefits for our members, owners and guests," he added.

The purchase is expected to add to earnings per share within the first full year after the transaction closes, scheduled for the second half of the year, executives said during a conference call on Monday.

The transaction must be approved by ILG and Marriott Vacations shareholders before it can be completed.

FrontFour portfolio manager Stephen Loukas said his firm is "highly pleased to see the transaction that it publicly championed come to fruition".

He added that FrontFour expects the total cost synergy and incremental top-line growth potential of the combined company to "significantly exceed" US$100 million a year, which will create significant value for shareholders.

"We are going to try to make it as much of an accretive transaction as it can possibly be," Marriott Vacations CEO Steve Weisz said in an interview, declining to specify exactly how far beyond the US$75 million minimum synergy target he believes will be achieved in the long-term.

The combined company will be the global licencee of seven upper-upscale and luxury vacation brands using the Marriott, Ritz-Carlton, Sheraton, Westin, St Regis and Hyatt names.

"It really creates a portfolio of upper-upscale brands that's unsurpassed in the industry," Mr Weisz said.

He and ILG's Mr Nash had "always recognised" the strategic value of putting their two businesses together, Mr Weisz said. "Any deal takes a while to marinate, it has to be the right time and the right price." WP