Park Hotels & Resorts Inc. and Chesapeake Lodging Trust have entered into a definitive merger agreement under which Park will acquire all the outstanding shares of Chesapeake in a cash and stock transaction valued at approximately $2.7 billion (inclusive of transaction costs). Upon completion of the merger, the combined company will have an estimated enterprise value of $12 billion, firmly solidifying Park’s position as the second largest lodging REIT while also advancing the company’s strategic goals of portfolio enhancement and diversification, according to a prepared statement.
The transaction has been approved by the board of directors and board of trustees of Park and Chesapeake, respectively, the release says. Under the terms of the merger agreement, Chesapeake shareholders will receive $11.00 in cash and 0.628 of a share of Park common stock for each Chesapeake share.
The release notes that The fixed exchange ratio represents an agreed upon price of $31.00 per share of Chesapeake shares of beneficial interest based on Park’s trailing 10-day volume weighted average price (“VWAP”) as of May 3, 2019. Based on Park’s closing stock price on May 3, 2019, this represents $31.71 per share of aggregate value to Chesapeake shareholders and represents a premium of approximately 11% to Chesapeake’s trailing 10-day VWAP and approximately 8% to Chesapeake’s closing stock price on May 3, 2019. Upon closing, Park stockholders and Chesapeake shareholders will own approximately 84% and 16% of the combined Company, respectively. The transaction is subject to customary closing conditions, including receipt of the approval of Chesapeake shareholders. The companies currently expect the transaction to close in late third quarter or early fourth quarter of 2019.”
According to Thomas Baltimore Jr., chairman and CEO of Park, “Chesapeake’s high-quality portfolio of hotels will accelerate our strategic goals of upgrading the quality of our portfolio and achieving brand, operator and geographic diversity. This merger provides Park and its stockholders with identifiable synergies and opportunities to drive incremental growth through Park’s proven asset management capabilities. In short, we are expecting to have the same record of success and growth from the Chesapeake assets that we have enjoyed from the Hilton assets we took over in January 2017 – and we will be laser focused every day to create long-term value.”
Thomas Natelli, chairman of the Chesapeake Board of Trustees, says, “This merger will be a transformative event for the shareholders of both companies. We believe the combined company will create a superior platform for delivering exceptional returns to Chesapeake’s existing shareholders, by improving diversification, increasing scale, lowering cost of capital and benefitting from combined synergies. Chesapeake’s management team, under the leadership of CEO Jim Francis, has built a fantastic portfolio of hotels in major markets and has consistently delivered excellent results. We are confident that Park’s leadership team will continue this trajectory with the addition of our portfolio of leading hotels, which will translate into increased value for all stakeholders.”
Park plans to sell five non-core hotels prior to the proposed closing, including both of Chesapeake’s New York City hotels (the 122-room Hyatt Herald Square New York and the 185-room Hyatt Place New York Midtown South), in addition to three non-core Park hotels which are currently under contract. On a pro forma basis that accounts for these sales, the combined company would consist of 66 high-quality hotels located in key urban and resort markets in 17 states and the District of Columbia.