One benefit of the transaction is that it continues Starwood’s focus on becoming more of an ‘asset light’ operator. According to President and CEO Frits van Paasschen:
This is the right time for us to spin-off our vacation ownership business and move Starwood forward in its asset light strategy. Not only does SVO continue to have a great outlook for growth, but valuations for timeshare companies are at attractive levels…Separating this distinct part of our business will allow Starwood to continue participating in this growth industry through a fee-based business model, as we do with our managed and franchised hotel business. This transaction puts us in a position to build on the strength of our brands to fuel growth and create shareholder value for both companies…as a standalone business, the new company will have ready access to capital to invest in both existing and potential new properties. Likewise, it will provide an opportunity for shareholders to invest in two pure-play companies with complementary investment propositions.
So a lot of the usual spinoff rationale as well. The new company will be led by Starwood’s former President, Matthew Avril, who had previously retired from the company in 2012 and Stephen Williams will remain its COO.
Starwood’s shares popped on the news as investors liked the spin and the quarterly numbers. The move echoes one made by Marriott International (MAR) roughly three and half years ago when it spun off its timeshare business, Marriott Vacations Worldwide (VAC). That spin has performed very well, but valuations are a bit different today than they were four years ago. The transaction is expected to be completed by the end of the year.
Disclosure: Author holds no position in any stock mentioned.