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VAC/ILG shareholder activism speculation [THREAD CLOSED]

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krj9999

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Stirring the pot; will see whether anything happens.

GREENWICH, Conn., May 24, 2017 /PRNewswire/ -- FrontFour Capital Group LLC (together with its affiliates, "FrontFour"), a significant stockholder of ILG Inc. ("ILG" or the "Company") (NASDAQ: ILG), today announced it has delivered a letter to the Board of Directors of ILG calling upon the Company to seek a business combination with Marriott Vacations Worldwide Corporation ("Marriott Vacations"). FrontFour believes there is tremendous industrial logic for ILG and Marriott Vacations to merge and at a meaningful premium to the current stock price, the transaction would still be highly accretive financially while also yielding a number of qualitative synergies.

Couple excerpts from the letter on rationale for combining:
(v) The extinguishment of potential conflicts associated with Marriott's intention to combine the Marriott Rewards Program with Starwood's Preferred Guest Loyalty Program ("SPG") by the end of 2018;
(vi) The creation of a complementary and unparalleled product portfolio enhancing the value proposition to existing timeshare owners;
 
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bizaro86

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ILG can't really merge right now. When they were spun off from Star wood, a reverse Morris trust structure was used. Essentially, no tax was paid on the transaction, but ILG can't sell itself or buy anything too big for awhile, or issue too many shares. If they do, the spin-off becomes taxable, and they have to pay the tax for Star wood (now part of Marriott International )

They got asked about it extensively on the last ILG conference call.
 

dioxide45

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Here is full text of the letter and article.

I don't know the legalities behind the reverse Morris trust, but it was a tax free event to the old Starwood (whole company) shareholders. Wikipedia gives a good explantion of how it works.

A Reverse Morris Trust is used when a parent company has a subsidiary (sub-company) that it wants to sell in a tax-efficient manner. The parent company completes a spin-off of a subsidiary to the parent company's shareholders. Under Internal Revenue Code section 355, this could be tax-free if certain criteria are met. The former subsidiary (now owned by the parent company's shareholders, but separate from the parent company) then merges with a target company to create a merged company. Under Internal Revenue Code section 368 (a)(1)(A), this could be largely tax-free if the former subsidiary is considered the "buyer" of the target company. The former subsidiary is the "buyer" if its shareholders (also the original parent company's shareholders) own more than 50% of the merged company. Thus, the former subsidiary will usually have a bigger market capitalization than the target company. The target company's managers rarely run the merged company.

It seems now to make sense why ILG was a good target company to buy Vistana. They were valued lower than Vistana. I thought it made sense for Marriott to have sought to acquire Vistana when they ended up going to ILG. Keeping what would have been all Marriott brands together in a combined timeshare entity. Marriott could have allowed crossover between the two companies properties through its exchange company using DC points and assigned DC points to each Vistana interval. It would have been a new crop of people they could earn pure profit enrollment fees from. Vistana owners could continue to use StarOptions within their system but if they wanted to go to a Marriott property, they would have used DC points.

It would seem though that Starwood selling Vistana to MVW wouldn't have been as advantageous since it wouldn't have been a tax free sale like when they sold to ILG.

I don't think a merger between MVW and ILG will happen. Having three premium timeshare brands under one company could raise the eyebrows of the Dept of Justice. I would certainly hope that they would at least look at any kind of merger as being suggested above. Having three (Hyatt, Marriott and Vistana) of the four (add Hilton) high end timeshare hotel brands in a combined ILG can't be good for the customer.
 
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taffy19

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[Do you read a threat in this letter?] [Threads merged.]

Read last paragraph.

Good or bad for timeshare owners in general? Did DRI timeshare owners fare well by their advice?

I know one thing that we will not spend one penny more in this racket because of the constant changes.
 
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taffy19

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Well, here is an example of how good this is for the DRI timeshare owners NOT!!! but it is for Wall Street investors.

Timeshare owners are enticed to do upgrades during a presentation and not all sales people are honest or explain enough so the consequences are understood but this person should have read his contract thoroughly and asked more questions if it wasn't all clear to him or have used his right to rescind the contract. Legally, the company is off the hook.

I believe that it has to do with DRI taking over independent resorts and have the owners of these resort convert to the DRI point system but that seems to cause problems. There are threads about it already about confusion what they ended up with but the fees go up a lot. How can this continue?

Longterm growth by these companies is no longer valued but timeshare owners are only going to take so much abuse or keep on paying more for using the same product they already owned. How are they going to integrate all these different systems without hurting one brand over the other? It's going to be interesting to keep following the outcome.
 

WalnutBaron

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Personally, I like good, healthy competition. This kind of merger would be anti-competitive.
 

taffy19

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It was already discussed on the Marriott Forum last Wednesday. I didn't realize that but it will be interesting to read what will happen at the end.

Healthy competition is best for the consumer like you wrote.
 

kds4

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Stirring the pot; will see whether anything happens.

GREENWICH, Conn., May 24, 2017 /PRNewswire/ -- FrontFour Capital Group LLC (together with its affiliates, "FrontFour"), a significant stockholder of ILG Inc. ("ILG" or the "Company") (NASDAQ: ILG), today announced it has delivered a letter to the Board of Directors of ILG calling upon the Company to seek a business combination with Marriott Vacations Worldwide Corporation ("Marriott Vacations"). FrontFour believes there is tremendous industrial logic for ILG and Marriott Vacations to merge and at a meaningful premium to the current stock price, the transaction would still be highly accretive financially while also yielding a number of qualitative synergies.

Couple excerpts from the letter on rationale for combining:
(v) The extinguishment of potential conflicts associated with Marriott's intention to combine the Marriott Rewards Program with Starwood's Preferred Guest Loyalty Program ("SPG") by the end of 2018;
(vi) The creation of a complementary and unparalleled product portfolio enhancing the value proposition to existing timeshare owners;

Interesting, but what stood out most to me was the language regarding opening up greater access to all of those with 'Corporate' paid II accounts versus individual paid memberships so II can pursue 'upselling' things like 'Gold' or 'Platinum' membership fees. I didn't realize that 4 out of every 10 II memberships are paid by Marriott, Hilton, etc. based on owning their respective points product.

"ILG has approximately 40% corporate exchange members whose annual fees are paid by their respective timeshare operator from their annual dues. This is lower margin, as ILG has less direct customer contact and therefore less of an ability to control the process and upsell. Over the years, this corporate exchange portion has experienced headwinds due to industry consolidation as well as the larger timeshare operators trying to reduce the annual fees paid, so they can capture a larger spread. Through the Vistana acquisition, ILG was able to bring approximately 25% of its corporate exchange members in-house, which effectively provides insulation against potential future headwinds. A combination with Marriott Vacations, would significantly further increase in-house corporate exchange members, providing additional stability to this business."
 

kds4

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Definitely sounds like the 2% are saber-rattling (and by putting their letter into the press hoping to become the tail that wags the dog).
 

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XXXXXX
 
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sts1732

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Personally, I like good, healthy competition. This kind of merger would be anti-competitive.
I agree, it's seems sorta like a narrowing of the market, like the airlines.
 

krj9999

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From Reuters today:

"ILG Inc (ILG.O), a U.S. provider of vacation timeshare properties, is holding early-stage talks about merging with another company after coming under pressure from activist shareholder FrontFour Capital Group, people familiar with the matter said.

The talks come as the timeshare industry seeks to improve its occupancy rates and shed its reputation of locking customers into complex contracts they do not understand, in the hope of becoming a more popular alternative for many U.S. holidaymakers.

ILG is working with investment bank Moelis & Co (MC.N) as it fields merger interest, the sources said. Marriott Vacations Worldwide Corp (VAC.N) and Hilton Grand Vacations Inc (HGV.N) are among the companies that have held talks with ILG, the sources added."
 

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[Marriott Vacations should Buy Interval Leisure Group] [Threads merged.]

There is a rumor out that Marriott Vacations may buy Interval Leisure Group which includes both Vistana and the Hyatt timeshare group. As a Marriott Vacations owner I would be thrilled if that happens
 
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amycurl

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I think that would be an interesting anti-trust situation.


Sent from my iPad using Tapatalk
 

RichardL

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i suspect Marriott VC has nowhere near the money to bit off that amount. Some of us recall when Marriott did in-deed own a piece of II, but it sold it off.
I believe that is why Interval originally gave a preference to Marriott and also why there has always been a Marriott Desk at II. Just my opinion. As an
owner everytime Marriott shows growth and expansion I become more confident, after several years of merely cutting back. New developments have
finally come.
 

SueDonJ

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There is a rumor out that Marriott Vacations may buy Interval Leisure Group which includes both Vistana and the Hyatt timeshare group. As a Marriott Vacations owner I would be thrilled if that happens

I think that's backwards. The talk, which started at the end of May, is about ILG merging with VAC or HGVC. This is the latest I've seen at seekingalpha.com: Timeshare merger talk lifts VAC, HGV, ILG

[Merging threads.]
 
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dioxide45

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I think that would be an interesting anti-trust situation.


Sent from my iPad using Tapatalk
I would hope that the DOJ would at least look in to such a merger. Regardless if it is VAC or HGVC with ILG. Having three of the four major hotel timeshare brands under one corporate umbrella isn't a good thing for consumers.

i suspect Marriott VC has nowhere near the money to bit off that amount. Some of us recall when Marriott did in-deed own a piece of II, but it sold it off.
I believe that is why Interval originally gave a preference to Marriott and also why there has always been a Marriott Desk at II. Just my opinion. As an
owner everytime Marriott shows growth and expansion I become more confident, after several years of merely cutting back. New developments have
finally come.
VAC doesn't need cash to make this happen. When ILG bought Starwood's timeshare division (Vistana), the timeshare company was actually the larger company of the two. This is how ILG did the Reverse Morris Trust. In this arrangement, technically Vistana bought ILG in the merger.

In any regard, if such merger were to happen, ILG would simply issue new shares to the shareholders of VAC or HGVC based on the value of the company they are merging with. In the case of ILG's merger with Vistana, no cash was handed out, it was a 100% stock deal.
 

bizaro86

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I think it is very likely ILG would be the acquiring party. If they are acquired, they will have to make a payment to Starwood (now Marriott International) for tax indemnification. If they acquire VAC, as long as they don't issue too much stock, no such payment would be required.
 

nuwermj

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VAC has the lowest value of the three players (ILG, HGV, and VAC). Timeshare companies are trading about 10-11x adjusted EBITDA. ILG paid 12x for Vistana. DRI sold for 5.5x

Adjusted EBITDA 2016
ILG = $302 million
VAC = $261.4 million
HGV = $402 million

Adjusted EBITDA Outlook 2017
ILG = between $345 million and $365 million
VAC = between $276 million and $291 million
HGV = between $390 million and $415 million
 

pedro47

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Anything is possible I can remember when the smaller shopping television channel QVC purchased the largest television shopping channel Cable Value Network (CVN).
Also, who would had dream that Amazon would purchased Whole Food Supermarket Company in 2017.
 

nuwermj

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I agree pedro47. Closer to home, Diamond Resorts, which in 2007 was Polo Towers in Las Vegas, acquired the much larger Suntarra. The leveraged buyout is the technique that Diamond used.
 

GregT

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Marriott: Maui Ocean Club Lahaina Villas (3BRx5), Ko Olina, Shadow Ridge II, Willow Ridge, Aruba Ocean Club, DC Points HGVC: Flamingo, Sea World, I-Drive, Starwood Bella (x4), SDO, TradeWinds, Worldmark
VAC has the lowest value of the three players (ILG, HGV, and VAC). Timeshare companies are trading about 10-11x adjusted EBITDA. ILG paid 12x for Vistana. DRI sold for 5.5x

Adjusted EBITDA 2016
ILG = $302 million
VAC = $261.4 million
HGV = $402 million

Adjusted EBITDA Outlook 2017
ILG = between $345 million and $365 million
VAC = between $276 million and $291 million
HGV = between $390 million and $415 million

I never realized that HGV had the highest EBITDA. That's really interesting. I still don't see a merger between any of these for quite awhile, but it is entertaining to track this.

Thanks for posting these!

Best,

Greg
 
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