Starwood Hotels Considers Asset Sales

NEW YORK? In typical fashion, Starwood Hotels & Resorts Worldwide made news just running its business as usual. Starwood? recognized as the world?s largest owner of hotels? first received attention when bond underwriters leaked information regarding the C-Corp?s intention to float $1 billion in bonds. However, the transaction was not favorable for Starwood and the company later decided against the move. Soon after news of the company?s intention to float bonds aired, an article appearing in The Wall Street Journal fueled growing speculation that Starwood was closing in on a deal to sell its Caesars casino operations for between $2.5 billion and $3 billion dollars, indicating that the company would instead raise money via asset sales. The Journal reported that Starwood Chairman Barry Sternlicht met with Park Place Entertainment Corp. CEO Arthur Goldberg to discuss a possible transaction. Park Place Entertainment consists of the former gaming operation which Hilton Hotels Corp. spun-off in 1998. In addition, the article stated that the tentative sale would be a shift in strategy for Starwood, attributing to Sternlicht a year of denials that the gaming operation is for sale. Company Spokesperson Jim Gallagher vehemently disagreed with that assertion and said that Starwood?s strategy has remained consistent ?since day one.? Pros & Cons To Selling Caesars Sternlicht has maintained that the company would evaluate the performance of the Caesars operation after 18 months. While that time period has not yet expired, over-saturation in the casino market? especially in Las Vegas? has hurt gaming operations across the board and Caesars is no exception. Gallagher acknowledged that the performance of the gaming operation has been disappointing, but would not comment as to the company?s intentions to sell Caesars. Another possible obstacle, if Starwood does decide to sell the Caesars operation, is the tax repercussions which may make a transaction prohibitive, at least at this time. HOTEL BUSINESS? sources have said Starwood is indeed looking to sell the operation and will use the funds it raises to pay down some of its $3.5 billion in debt. The company accrued much of that debt in 1998 when it led the record-setting frenzy of acquisitions with several deals, including a $14.5 billion white-knight purchase of ITT Corp. Starwood made an unsuccessful attempt at refinancing six months ago. This time around, Starwood?s bonds received a junk rating of ?Ba1? from Moody?s Investment Service, which is one notch below investment grade. Jason Ader, a leading hotel and gaming analyst with Bear Stearns, said that Starwood seems to be making the right moves but, by nature of its high profile and the dynamic presence of Sternlicht, the company is always under the microscope. ?I think they expected that rating. They have an opportunity to improve their credit rating over time by de-leveraging the company,? Ader said. ? I think they?re moving in the right direction here.? Analysts also reported hearing that a sale of the Desert Inn Hotel & Casino in Las Vegas is imminent. The property has been on the block for some time, with some sources reporting that it sparked the interest of pop-superstar Michael Jackson. John Arabia, a lodging analyst with Green Street Advisors in California, pointed out that the pressure is off of Starwood because its debt is not due until November of 2,000. ?Starwood?s strategy is very clear and has been for some time. Barry Sternlicht has said he wants to be the dominant, fully-integrated lodging company and I think he?s well on his way,? Arabia said. ?I believe Starwood is the only hotel company out there that has the potential to become the hotel company that Marriott International already is.? Gallagher said that the decision not to float the bonds is an indication of the strong financial position of the company.