Six in Starwood talks

December 4, 2001 Posted: 1417 GMT

LONDON (CNN) -- UK-based Six Continents is reportedly in talks to buy Starwood Hotels & Resorts of the U.S. for  $7.6 billion.

The deal would create one of the world's biggest hotel operators – with brands such as Inter-Continental, Holiday Inn, Sheraton and Westin. A spokesman for Six Continents and Starwood declined to comment on the reports.

Six Continents – formerly known as Bass - is preparing to make a bid for Starwood in February in an effort to expand its U.S. operations, according to a report in the Sunday Telegraph.

However, analysts say such a deal is unlikely – given the heavy debt load of both companies.

Six Continents stock, which has slipped 4 percent this year and hit low of 549 on September 11, rose 0.5 percent  to 696 pence in Tuesday afternoon trading. The stock has been as high as 802 pence in May.

New York-based Starwood, which runs 700 hotels including the Sheraton and Westin chains, is the second largest hotel operator in the U.S. behind Marriott International. It has a market captalisation of $5.4 billion and debt burden of about $4.5 billion.

Six Continents operates 3,200 hotels worldwide, including Inter-Continental, Holiday Inn and Crown Plaza. Six Continents is in the midst of a corporate makeover on its hotels business, and last year it sold its brewing business to Interbrew of Belgium for $2.3 billion.

That has led to speculation that Six Continents would use the cash from that sale to go on the acquisition trail. The company is said to have about $4 billion in cash for acquisitions although the company would not confirm or deny that number.

But one analyst told CNN that Six Continents is not in the financial position to buy a company as large as Starwood. He said the company, instead of being cash rich, actually has a net debt of almost $2 billion.

"They just can't afford it," one analyst told CNN. 

The only options for Six Continents, he said, would be to sell off its pub operations to fund the takeover or merge with Starwood and then dispose of some of its assets.

Six Continents is expected to report its full-year results on Thursday.