Marriott Dispute Delays Patriot-Interstate Merger

Marriott Dispute Delays Patriot-Interstate Merger

By Maria P. Vallejo

Dallas - Patriot American Hospitality is watching closely as Interstate Hotels Co. and Marriott International continue their settlement talks as they seek to avoid going to court tomorrow--and possibly delaying the merger of Patriot and Interstate.

A merger with Interstate would give Patriot an additional 40-owned hotels and 222 hotel management or lease contracts, including Hilton, Marriott and Hampton Inn properties. Patriot would acquire 40 percent of Interstate's shares at $37.50 each and convert the remaining 60 percent into shares with 1.341 Patriot shares per Interstate shares.

The talks are a last-ditch effort to resolve the Marriott case against Interstate, which concerns a disputed franchise agreement accompanying the $1.34 billion merger deal announced late last year. During the past month, Marriott has tried to stymie the merger closing between Patriot American and Interstate with a series of court appeals and a restraining order.

"The intention of our actions is to preserve a series of contractual rights, and that's been our only issue," said Marriott spokesman Tom Marder. "These contractual rights cover a significant amount of interest by Marriott."

The merger was expected to close by April 4, but disagreements about a non-binding letter of intent relating to last year's agreement between Patriot American and Marriott have indefinitely postponed its completion.

As a subsequent part of the agreement, a non-binding letter of intent was drafted, promising Marriott the management rights to 10 Marriott hotels currently owned by Interstate, the largest operator of Marriot hotels. Marriott, in turn, would allow Patriot to terminate its franchise agreements with 10 other Marriott hotels and convert them into Wyndhams.

Given the ongoing litigation, neither Marriott nor Patriot officials would comment on the proceedings.

The out-of-court settlement talks were announced about two weeks after the Court of Appeals for the United States Fourth Circuit Court remanded Marriott's case to the trial court. A week before that, the U.S. District Court denied Marriott's motion for a preliminary injuction against the acquisition. Marriott filed a temporary restraining order on March 30, the day a shareholder meeting would have assured the merger completion. Based on the votes tallied, the merger agreement would have been overwhelmingly approved, Patriot officials said.

Despite Marriott's intervention, Patriot officials said they still plan to close the deal. "We're still committed to completing the merger with Interstate," said spokesperson Suzanne Coutraux.