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Starwood’s Vacation Ownership Business Spin-Off

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Apr. 9 2015, Updated 5:05 p.m. ET

Spin-off overview

On February 10, 2015, Starwood Hotels and Resorts (HOT) announced plans to spin off its vacation ownership business, SVO (Starwood Vacation Ownership) into a separate publicly traded company. SVO reported vacation ownership revenue of ~$640 million in 2014.

This spin-off will create a new pure-play vacation ownership company with a seasoned management team and a strong balance sheet. It will take advantage of increasing growth opportunities within the timeshare industry.

The spin-off is expected to be tax free for Starwood shareholders. It will be effected through a pro rata distribution of the new entity’s stock to existing Starwood shareholders.

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As part of the planned spin-off, the new company will become a higher upscale timeshare company. It would develop and operate SVO’s 22 timeshare resorts. The new company would continue to expand its existing developments within its current portfolio. It would enter into a new long-term license agreement with Starwood for current and future timeshare properties to retain affiliation with the globally renowned Westin and Sheraton brands.

Other companies’ timeshare brands include Hilton’s (HLT) Hilton Grand Vacation, Hyatt’s (H) Hyatt Residence, and Wyndham’s (WYN) Wyndham Vacation Resorts. In 2011, Marriott (MAR) spun off its timeshare segment to Marriott Vacations Worldwide Corporation, or MVW.

Investors could invest in these companies through ETFs like the PowerShares Dynamic Leisure and Entertainment Portfolio (PEJ), the iShares U.S. Consumer Services (IYC), and the Consumer Discretionary Select Sector SPDR Fund (XLY).

Why a spin-off?

Frits van Paasschen, former president and CEO of Starwood, said, “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.”

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