After courting an offer from another North Texas hotel investment company, Irving-based FelCor Lodging Trust has agreed to merge with RLJ Lodging Trust(NYSE: RLJ).

The $1.18 billion all-stock transaction, announced Monday, will create a hotel-focused real estate investment trust with an enterprise value of $7 billion and market capitalization of $4.2 billion. The combined entity will have a portfolio of 160 Marriott, Hilton, Hyatt and Wyndham hotels in 26 states and Washington D.C., and be the country’s third-largest lodging REIT by enterprise value.

FelCor (NYSE: FCH) will operate under RLJ, based in Maryland, as a wholly-owned subsidiary, take on the RLJ name and trade under its ticker symbol. The deal is expected to close by the end of the year.

Each share of FelCor common stock will be converted to 0.362 shares of newly-issued RLJ common stock. As a result, RLJ stakeholders will own roughly 71 percent of the combined company’s shares, with FelCor shareholders owning 29 percent.

Among RLJ Lodging Trust's portfolio is a Courtyard by Marriott in Waikiki Beach.

Among RLJ Lodging Trust’s portfolio is a Courtyard by Marriott in Waikiki Beach.

FelCor (NYSE: FCH) will operate under RLJ, based in Maryland, as a wholly-owned subsidiary, take on the RLJ name and trade under its ticker symbol. The deal is expected to close by the end of the year.

Each share of FelCor common stock will be converted to 0.362 shares of newly-issued RLJ common stock. As a result, RLJ stakeholders will own roughly 71 percent of the combined company’s shares, with FelCor shareholders owning 29 percent.

The deal values FelCor at or $8.57 per share, representing a 16.7 percent premium, Reuters reported. FelCor’s stock opened at $8 on Monday, while RLJ opened at $23.49 per share.

We are very pleased to combine with RLJ Lodging Trust to create a leading lodging REIT that is positioned for significant long-term growth,” FelCor CEO Steven Goldman said in a prepared statement. “This merger creates a company that has greater reach in key markets with a streamlined operating structure and more advantageous cost of capital. FelCor shareholders are receiving an attractive valuation for the company’s hotel assets and have the opportunity to benefit from a highly respected management team with a history of value creation.”

RLJ’s CEO Ross H. Bierkan will lead the company after the merger. Goldman’s role was not disclosed.

FelCor and RLJ said they expect the transaction to be accretive within the first full year after its closure. The companies expect to save $12 million in general and administrative expenses, and another $10 million in stock-based compensation and other G&A costs.

Bank of America Merrill Lynch acted as financial adviser to FelCor, while RLJ was advised by Barclays.

The RLJ deal ends FelCor’s negotiations with Dallas’ Ashford Hospitality Trust (NYSE: AHT), which made a public bid for the Irving company in February. According to documents released by Ashford at that time, the company offered to acquire FelCor at $9.27 per share in a deal worth approximately $1.27 billion.

FelCor stakeholder and activist hedge fund Land and Buildings Investment Management LLC opposed that deal, calling it “woefully inadequate,” Reuters said.

FelCor also took issue with the offer, saying Ashford had undervalued the company. But in a letter to Ashford CEO Monty Bennett, Goldman said FelCor would re-consider a cash or substantially all-cash offer.

“…An all- or substantially all-cash proposal provides much greater comfort and certainty and could alter our analysis of AHT’s proposal,” Goldman wrote in February “If AHT is willing to consider making such a revised proposal, FelCor stands ready to re-engage with AHT as soon as is practicable.”

As of Friday, Ashford had an enterprise value of $4.9 billion, RLJ said.

Presented by Dallas Business Journal

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