Blackstone Group Agrees to Buy
Hotel Chain La Quinta for $2.3 Billion
by Ryan Chittum
From The Wall Street Journal Online
November 16, 2005
An affiliate of Blackstone Group, the private-equity firm, agreed to buy La Quinta Corp., a Dallas-based hotel chain for $2.28 billion plus debt. The deal is another in a series of big bets on the hotel industry by Blackstone since March of last year.
Blackstone agreed to pay $11.25 a share, a 37% premium to La Quinta's closing price Tuesday of $8.22. Including debt, the deal adds up to $3.4 billion. It is subject to approval by shareholders and is expected to close next quarter. Yesterday on the New York Stock Exchange, La Quinta shares were up $2.66, or 32%, at $10.88.
The private-equity firm has put more than $7 billion into hotels in the past 20 months. That amount jumps to $10.5 billion including the debt it has assumed. The deal shows the firm still believes there is value to be found in the hotel sector, which has been performing well in the past two years following one of the worst downturns in its history.
La Quinta is considered to be well-run and is popular with travelers. The company operates primarily in the midscale hotel segment and owns and runs about 360 hotels while franchising an additional 240 hotels in 39 states. It owns its namesake brand plus Baymont Inn & Suites and Woodfield Suites.
Limited-service midscale hotels like the ones La Quinta runs have outperformed the rest of the industry recently, with revenue per available room up 17% this year, according to Smith Travel Research. That number is up 12% in the industry as a whole.
"La Quinta's been performing exceptionally well," said Will Marks, an analyst with San Francisco-based JMP Securities who has been bullish on the stock. "Wall Street has not given it the same valuation as they have other stocks because it's [basically] a two-brand company." Mr. Marks said La Quinta Chief Executive Francis W. (Butch) Cash raised money earlier this year to buy another hotel brand. "He found no brand was available at an attractive price, so he thought selling the company was in the best interest of shareholders."
Blackstone bought Wyndham International Inc. earlier this year for $1.44 billion. That followed acquisitions of Extended Stay America, Prime Hospitality and Boca Resorts in a seven-month span last year for a total of about $3.3 billion. Of those assets, Blackstone has sold the Amerisuites chain and the franchising rights for the Wyndham chain.
Blackstone has said it likes the outlook for the demographics of leisure travel and is buying valuable assets but isn't a long-term holder of real estate. Some analysts have said the company may integrate one or more of its acquired hotel businesses and spin them off as public companies.
A spokesman for Blackstone declined to comment. La Quinta officials couldn't be reached for comment.
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