Starwood Acquires Portion Of Le Meridien Debt

Starwood Hotels & Resorts Worldwide in conjunction with Lehman Brothers investment bank last week acquired the outstanding senior debt of Le Meridien Hotels and Resorts, effectively taking control of the struggling London-based hotelier. Starwood's share of the $1.3 billion bailout was $200 million. Le Meridien's portfolio includes more than 120 upscale properties. While the brand has modest distribution in the United States, it is well represented in Europe and the Middle East.

According to Allison Reid, Starwood vice president for investor relations, the deal is not an actual acquisition. She anticipated that Starwood would take three to six months to finalize its strategy, while it and Lehman Brothers worked on a restructuring of the debt. Meanwhile, Le Meridien's management remains in place.

One strategy could be for Starwood and Lehman Brothers to hold the company for a while and then attempt to resell the debt. "Anyone who buys distressed debt understands that the debt may not be able to be resold, so a back-up plan might be a takeover," said Bjorn Hanson, global leader of the hospitality practice at PricewaterhouseCooopers. "We often work with clients who want to buy a business that's not doing well, so they buy the debt and then foreclose."

One eventual option is for Starwood formally to acquire ownership or management contracts on select Le Meridien assets and convert them to existing Starwood brands, which include Westin, Sheraton and W. Some analysts see the possibility that Starwood would manage the entire Le Meridien portfolio as a standalone brand. Travel managers who have negotiated rates in place with Starwood would benefit from the increased distribution should Starwood end up owning or managing Le Meridien properties.

Separately, Le Meridien last month announced it had appointed a new CEO, Robert Riley, a former CEO of Mandarin Oriental. Juergen Bartels, who became Le Meridien CEO in 2000 and, the following year, launched an ambitious program to update the brand, left the company last week. Bartels is a former Starwood CEO.

Le Meridien began having financial troubles in 2002 due to the downturn in the travel business and the expenses incurred in the elaborate renovation program. The Royal Bank of Scotland, which owned key Le Meridien assets in London and Dublin, last year held the hotel company in default over unpaid rent. Marriott International last month announced it had assumed management of Le Meridien properties in those two cities. The Grosvenor House in London will be rebranded a J.W. Marriott, while the Shelbourne will be rebranded a Renaissance Hotel. Defections from the Le Meridien flag in the United States continued last week when ownership of the Le Meridien Boston was assumed by Hong Kong-based Langham Hotels International, which reflagged the property the Langham Boston.