FrontFour Capital Group, a significant stockholder of Interval Leisure Group (ILG), said on Tuesday it delivered a letter to the board of directors of ILG calling upon the company to seek a business combination with Marriott Vacations Worldwide Corp. ILG is the parent company of Interval International, a global provider of membership and leisure services to the vacation industry.
In the letter to ILG Chairman President and CEO Craig Nash, FrontFour said it believes there is tremendous industrial logic for ILG and Marriott Vacations to merge and at a meaningful premium to the current stock price, the transaction would still be highly accretive financially while also yielding a number of qualitative synergies.
The letter from FrontFour, which has more than a 2% stake in ILG, stated that ILG could be sold/merged for US$33-US$39/share. The letter added that such a premium would represent close to 100% upside at the midpoint of the range from where ILG stock traded during the first quarter of 2017. Additionally, it noted that over the last year there has been virtually no insider buying despite the stock trading at significantly lower levels.
FrontFour added that a merger would be benefit from the integration of the Vistana and Marriott Vacations sales and marketing functions, especially given Marriott International’s ownership of the respective hotel flags, as well as eliminate duplicative corporate G&A.
FrontFour further stated numerous concerns, among others, related to:
- The cumbersome size of ILG’s 13-member board
- ILG’s stated appetite for incremental acquisitions, despite not yet having fully integrated the Vistana acquisition from Starwood Hotels and Resorts from May 2016
- What it calls ILG’s questionable capital allocation policy and the board’s view of ILG’s intrinsic value in light of only US$3 million in repurchases during the first quarter of 2017 despite highly accretive trading levels
In a note on Wednesday morning, analysts from SunTrust Robinson Humphrey said they agree that a combination between ILG and Marriott Vacations could make sense as both license brands and source leads from Marriott International and there should be more synergies in a Marriott Vacations merger than ILG would find in another deal. “However, the devil is in the details and price matters,” the note said.
FrontFour summarized its letter by saying it believes that a significant opportunity exists to unlock value for all shareholders. “We reiterate our belief that a significant percentage of the shareholder base is supportive of a transaction and urge management and the Board to fully explore a business combination with Marriott Vacations. We are long-term and typically passive investors; however to the extent that no action is taken, we will review all of our options including but not limited to taking action at ILG’s 2018 annual meeting.”