3 Things To Keep In Mind Regarding The Marriott Vacations-ILG Buyout Report

ILG Inc ILG shares rose about 7 percent Tuesday after Bloomberg reported about a possible buyout of the company by Marriott Vacations Worldwide Corp VAC. Marriott Vacations reportedly offered to buy ILG, a provider of membership and leisure services to the vacation industry, for $30 per share.

Delving on the speculation, Stifel presented three points to keep in mind regarding the development.

1. Proxy Fight In The Air?

Analysts Simon Yarmak and Alexander Fraser noted that FrontFour Capital announced in May it delivered a letter to ILG, urging the company to consider a business combination with Marriott Vacations. The analysts also mentioned reports in September that said FrontFour is threatening a proxy war if the merger doesn't materialize.

2. Convertible Bond Offering

Stifel noted that Marriott Vacations priced $230 million worth of 5-year convertible notes at 1.50 percent in September, with the company suggesting it intends to use about $40 million of the proceeds to repurchase shares from the convertible arbs and $11.2 million for hedging costs.

That said, the firm noted there were also rumors that some of the proceeds could be used for the ILG purchase, which has an equity market cap of $3.6 billion.

3. Uniting Properties & Resolving Loyalty Program Conflict

The firm noted that Marriott Vacations has had an exclusive agreement with Marriott International Inc MAR to sell timeshare points to Marriott Reward program members, Additionally, the former has close to a 100-year exclusivity, assuming extensions were exercises.

With the closing of Marriott International's merger with Starwood Hotels & Resorts Worldwide Inc HOT, the firm said the Starwood Preferred Guest, or SPG, members program will eventually be merged with Marriott Rewards, while ILG has rights with Vistana to sell timeshare to SPG members.

Stifel said it believes both Marriott Vacations and ILG had merger talks earlier this year. The firm said the merger talks may have ended in June, when both companies restarted their buyback programs.