Filed by MeriStar Hotels & Resorts, Inc.
pursuant to Rule 425 under the Securities
Act of 1933 and deemed filed pursuant to Rule
14a-12 under the Securities Exchange Act of 1934
Subject Company: Interstate Hotels Corporation
Commission File No.: 0-26805
FOR IMMEDIATE RELEASE
MERISTAR HOTELS & RESORTS CONTACTS: INTERSTATE HOTELS CORPORATION CONTACTS:
- ---------------------------------- --------------------------------------
Melissa Thompson Tom Loftus Lisa O'Connor
Director of Corporate Communications Media Inquiries Investor Relations
(202) 295-2228 (412) 937-3382 (412) 937-3319
Jerry Daly or Carol McCune Mike Pascale or Rhonda Barnat
Daly Gray Public Relations (Media) Abernathy MacGregor Group (Media)
(703) 435-6293 (212) 371-5999
MERISTAR HOTELS & RESORTS TO MERGE WITH INTERSTATE HOTELS
NEW COMPANY WILL OPERATE MORE THAN 400 HOTELS WITH OVER 86,000 ROOMS
WASHINGTON, D.C., AND PITTSBURGH, May 2, 2002--MeriStar Hotels & Resorts (NYSE:
MMH) and Interstate Hotels Corporation (Nasdaq: IHCO), the nation's two largest
independent hotel management companies, today announced that they have signed a
definitive agreement to merge.
The combined company will be the premier independent hotel operator in the
world, operating more than 86,000 rooms in 412 hotels, representing over 30
franchise brands in North America and Europe. The combined company will possess
expansive operational and financial resources enabling it to provide
state-of-the-art services to hotel owners.
The combined company, to be named Interstate Hotels Corporation, will include
BridgeStreet Corporate Housing Worldwide and Doral Resorts & Conference Centers.
It will have estimated 2002 pro forma revenues of $340 million, and estimated
pro forma EBITDA of $33 million to $35 million. The transaction is valued at
approximately $68 million based on MeriStar's closing stock price of $1.21 on
May 1, resulting in a total market capitalization of $260 million for the
combined company.
The combined company will be headquartered in Washington, D.C. while maintaining
a significant operating presence in Pittsburgh. Paul W. Whetsell, MeriStar
chairman and chief executive officer, and John Emery, president and chief
operating officer, will continue in those roles for the merged company.
Interstate's Chairman and Chief Executive Officer Thomas F. Hewitt will serve on
the combined company's board of directors. The combined company's board of
directors initially will include six members nominated by MeriStar and seven
members nominated by Interstate, of which five initially will be representatives
from Interstate's Investor Group.
"The merger will create an independent hotel management company with a portfolio
of more than 400 properties in the United States, Canada and Russia, which will
allow us to achieve significant economies of scale," said Whetsell. "We expect
synergistic corporate savings of between $8 million and $10 million on an
annualized basis. The merger will be accretive to stockholders in 2002."
Commenting on the merger, Hewitt said, "Since our spin-off from Wyndham
International, we have been committed to strengthening the financial structure
of our organization and strategically growing the company. We have
overwhelmingly concluded that this transaction is in the best interests of our
stockholders. We believe the combined company will offer stockholders of both
companies a strong platform for future growth.
"In addition, we will be a stronger, more efficient operator, allowing us to
generate higher returns for our owners and, as a result, higher management fees
for the new company than we could have achieved operating separately," Hewitt
said. "Both companies' properties are complementary, and Interstate's presence
in Eastern Europe, combined with MeriStar's BridgeStreet Corporate Housing
Worldwide division's experience in Western Europe, creates additional growth
avenues."
"Both Interstate and MeriStar have a highly focused emphasis on customer service
and generating the highest possible returns for their owners," Whetsell said.
"Our initial internal mission will be to meld our highly similar operating
philosophies into one common culture and focus on associate retention. We expect
the transaction to be virtually seamless to employees at our hotels."
TRANSACTION HIGHLIGHTS
In the tax-free, stock-for-stock merger of Interstate into MeriStar, Interstate
stockholders will receive 4.6 shares of the surviving company's common stock for
each share of the 12.2 million shares of Interstate common stock outstanding and
each of the 39.4 million existing shares of MeriStar common stock and operating
partnership units will remain outstanding. All Interstate stock options will be
converted into options to purchase shares of the combined company.
The consummation of the merger is subject to various conditions, including U.S.
antitrust clearance and the respective approvals of the stockholders of
Interstate and MeriStar. The stockholders meetings and the closing are expected
to occur in the third quarter of 2002. MeriStar or Interstate may each receive
from the other a termination fee of $2 million plus up to $500,000 in expenses
if the merger agreement is terminated by the other party under various
circumstances.
In connection with the transaction, Interstate's Investor Group will convert its
Interstate convertible debt and preferred equity into shares of common stock of
the combined company and receive a payment of $9.25 million. The Investor Group
and Interstate senior management have committed to vote in favor of the merger
their Class A common stock, which will constitute approximately 57 percent of
Interstate's common stock expected to be outstanding at the time of the
Interstate stockholders meeting. Oak Hill Capital Partners and its affiliates
and MeriStar management, which collectively own 22 percent of MeriStar common
stock, have agreed to vote their shares in favor of the merger.
The respective boards of directors approved the transaction yesterday. The
Interstate board action was based in part upon the recommendation of its Special
Committee of independent directors. Each board received a fairness opinion from
its respective financial advisor. Salomon Smith Barney advised MeriStar in the
transaction and Merrill Lynch advised Interstate.
GROWTH STRATEGIES AND TRANSACTION BENEFITS
"Due to economies of scale, a larger customer base, and an improved capital
structure, the merged company will have expanded avenues of growth," Emery said.
"The new company will have a real estate joint venture in place to acquire $300
million to $500 million of hotel assets, and up to $50 million of cash and
availability on its line of credit to participate in joint ventures."
The hotel management business unit will use its expanded resources to provide
current and prospective owners with a wide array of improved services and
benefits, including Internet-based business information systems providing
real-time data for better yield management and cost control; broader electronic
and direct sales resources, including more than 2,000 sales professionals;
increased cost efficiency through national purchasing; and capital for
co-investments and joint ventures.
BridgeStreet's growth will be gained through expansion of its national client
base and European operations, as well as its recently established licensing
program for North American markets.
Doral Resorts & Conference Centers will grow through new management contracts
that leverage the strength of the Doral name and a central reservations system.
CAPITAL STRUCTURE
A new $113 million senior credit facility will replace the existing revolving
credit facilities of both companies. The facility, for which credit commitments
have been received, will have a three-year term loan and a three-year revolver
with a one-year option to extend. The interest rate on the facility will range
from LIBOR + 300 basis points to LIBOR + 450 basis points, based on certain
financial covenant levels. Total debt outstanding, net of cash, is expected to
be $135 million at closing. Emery commented, "The merger significantly improves
our capital structure due to the conversion of Interstate's $25 million of
convertible notes and $7.25 million of convertible preferred stock into shares
of common stock of the combined company prior to closing."
Upon completion of the merger, the combined company is expected to have
approximately 105 million common shares and operating partnership units
outstanding.
CONFERENCE CALL
MeriStar and Interstate will hold a joint conference call at 2 p.m. ET today to
discuss in greater detail the merger of the two companies. The conference call
will feature Paul W. Whetsell, chairman and chief executive officer, MeriStar
Hotels & Resorts; Thomas F. Hewitt, chairman and chief executive officer of
Interstate Hotels; and John Emery, president and chief operating officer of
MeriStar Hotels & Resorts. A simultaneous webcast of the conference call will be
available at MeriStar's Web site, www.meristar.com, and at www.streetevents.com.
ABOUT THE NEW COMPANY
The new company will combine MeriStar's 277 managed hotels with Interstate's 135
properties, giving it more than twice those of its nearest competitor in terms
of properties and three times the size in number of rooms. The combined company
will be the largest independent operator of full-service Marriott, Hilton and
Sheraton hotels, operating properties in 45 states, the District of Columbia,
Canada and Russia.
The company also will include MeriStar's BridgeStreet Corporate Housing
Worldwide division with more than 3,300 units in the United States, Canada and
Europe.
ABOUT INTERSTATE
Interstate Hotels Corporation operates 135 hotels with more than 28,000 rooms in
36 states, the District of Columbia, Canada and Russia. For more information,
visit www.interstatehotels.com.
ABOUT MERISTAR
MeriStar Hotels & Resorts operates 277 hospitality properties with more than
58,000 rooms in 42 states, the District of Columbia, and Canada, including 54
properties managed by Flagstone Hospitality Management, a subsidiary of MeriStar
Hotels & Resorts. BridgeStreet Corporate Housing Worldwide, a MeriStar
subsidiary, is one of the world's largest corporate housing providers, offering
upscale, fully furnished corporate housing throughout the United States, Canada,
the United Kingdom, France and 35 additional countries through its network
partners. For more information about MeriStar, visit the company's Web site:
www.meristar.com.
THIS PRESS RELEASE CONTAINS "FORWARD-LOOKING STATEMENTS," WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, ABOUT THE COMPANIES,
INCLUDING THOSE STATEMENTS REGARDING FUTURE OPERATING RESULTS AND THE TIMING AND
COMPOSITION OF REVENUES, AMONG OTHERS, AND STATEMENTS CONTAINING WORDS SUCH AS
"EXPECTS," "BELIEVES" OR "WILL," WHICH INDICATE THAT THOSE STATEMENTS ARE
FORWARD-LOOKING. EXCEPT FOR HISTORICAL INFORMATION, THE MATTERS DISCUSSED IN
THIS PRESS RELEASE ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE THE ACTUAL RESULTS TO DIFFER
MATERIALLY, INCLUDING THE CURRENT SLOWDOWN OF THE NATIONAL ECONOMY, ECONOMIC
CONDITIONS GENERALLY AND THE REAL ESTATE MARKET SPECIFICALLY, THE IMPACT OF THE
EVENTS OF SEPTEMBER 11, 2001, LEGISLATIVE AND REGULATORY CHANGES, AVAILABILITY
OF DEBT AND EQUITY CAPITAL, INTEREST RATES, COMPETITION, SUPPLY AND DEMAND FOR
LODGING FACILITIES IN OUR CURRENT AND PROPOSED MARKET AREAS AND THE POTENTIAL
DE-LISTING OF MERISTAR HOTELS & RESORTS BY THE NYSE. ADDITIONAL RISKS ARE
DISCUSSED IN THE COMPANIES' FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION,
INCLUDING THE COMPANIES' ANNUAL REPORTS ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 2001.
THIS PRESS RELEASE SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES NOR SHALL THERE BE ANY SALE OF ANY SECURITIES IN
ANY STATE OR PROVINCE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER APPLICABLE SECURITIES
LAWS. MERISTAR PLANS TO FILE A REGISTRATION STATEMENT ON FORM S-4 WITH THE SEC
IN CONNECTION WITH THE MERGER TRANSACTION. THE FORM S-4 WILL CONTAIN A
PROSPECTUS, A PROXY STATEMENT, AND OTHER DOCUMENTS FOR THE STOCKHOLDERS'
MEETINGS OF MERISTAR AND INTERSTATE AT WHICH TIME THE PROPOSED TRANSACTION WILL
BE CONSIDERED. MERISTAR AND INTERSTATE PLAN TO MAIL THE PROXY STATEMENT AND
PROSPECTUS CONTAINED IN THE FORM S-4 TO THEIR RESPECTIVE STOCKHOLDERS. THE FORM
S-4, PROXY STATEMENT AND PROSPECTUS WILL CONTAIN IMPORTANT INFORMATION ABOUT
MERISTAR, INTERSTATE, THE MERGER AND RELATED MATTERS. INVESTORS AND STOCKHOLDERS
SHOULD READ THE FORM S-4, PROXY STATEMENT AND PROSPECTUS AND THE OTHER DOCUMENTS
FILED WITH THE SEC IN CONNECTION WITH THE MERGER CAREFULLY BEFORE THEY MAKE ANY
DECISION WITH RESPECT TO THE MERGER. A COPY OF THE MERGER AGREEMENT WILL BE
FILED WITH THE SEC BY BOTH MERISTAR AND INTERSTATE. THE FORM S-4, PROXY
STATEMENT AND PROSPECTUS, AND ALL OTHER DOCUMENTS FILED WITH THE SEC IN
CONNECTION WITH THE MERGER TRANSACTION WILL BE AVAILABLE WHEN FILED FREE OF
CHARGE AT THE SEC'S WEB SITE, AT WWW.SEC.GOV. IN ADDITION, THE PROXY STATEMENT
AND PROSPECTUS, AND ALL OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH
THE MERGER WILL BE MADE AVAILABLE TO INVESTORS FREE OF CHARGE BY WRITING TO THE
MERISTAR AND INTERSTATE CONTACT ADDRESSES SET FORTH IN THIS PRESS RELEASE.
IN ADDITION TO THE FORM S-4, THE PROXY STATEMENT, AND THE OTHER DOCUMENTS FILED
WITH THE SEC IN CONNECTION WITH THE MERGER, BOTH MERISTAR AND INTERSTATE ARE
OBLIGATED TO FILE ANNUAL, QUARTERLY AND SPECIAL REPORTS, PROXY STATEMENTS AND
OTHER INFORMATION WITH THE SEC. YOU MAY READ AND COPY ANY REPORTS, STATEMENTS
AND OTHER INFORMATION FILED WITH THE SEC AT THE SEC'S PUBLIC REFERENCE ROOM AT
450 FIFTH STREET, N.W., WASHINGTON, D.C. 20549. PLEASE CALL THE SEC AT
1-800-SEC-0330 FOR FURTHER INFORMATION ON THE PUBLIC REFERENCE ROOM. FILINGS
WITH THE SEC ALSO ARE AVAILABLE TO THE PUBLIC FROM COMMERCIAL DOCUMENT-RETRIEVAL
SERVICES AND AT THE WEB SITE MAINTAINED BY THE SEC AT WWW.SEC.GOV.
MeriStar will be, and certain other persons named below may be, soliciting
proxies from MeriStar's stockholders in favor of the transaction. Some of the
directors and executive officers of MeriStar and some of the directors and
executive officers of Interstate may be deemed to be participants in MeriStar's
solicitation of proxies.
The participants in the solicitation include the following directors, officers
and employees of MeriStar:
Name TITLE
Paul W. Whetsell Chairman of the Board of Directors and
Chief Executive Officer
Steven D. Jorns Vice Chairman of the Board of Directors
John Emery President, Chief Operating Officer and
Director
J. Taylor Crandall Director
Leslie R. Doggett Director
Kent R. Hance (2) Director
S. Kirk Kinsell (1) Director
James B. McCurry (1) (2) Director
James R. Worms (1) Director
James A. Calder Chief Financial Officer and Chief Accounting
Officer
Robert Morse President - Hotels & Resorts
Bruce G. Wiles Chief Investment Officer
Christopher L. Bennett Senior Vice President and General Counsel
Bruce Riggins Director of Finance
Melissa Thompson Director of Corporate Communications
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
In addition, Daly Gray Public Relations is participating in the solicitation.
Some of the participants in the solicitation have interests in the merger and
associated transactions, some of which may differ from, or may be in addition
to, those of MeriStar's stockholders generally:
o In connection with the merger, some of MeriStar's senior officers,
including Messrs. Whetsell and Emery, will become senior officers of
Interstate, the publicly-traded company that will result from the
merger.
o In addition, under the terms of MeriStar's employee stock option
plan, the merger will cause all of the options issued under that
plan to vest.
o None of the directors or officers of MeriStar holds more than 1.0% of
the outstanding common stock of MeriStar except for Messrs. Crandall
(3.4%), Jorns (3.6%) and Whetsell (2.3%). All percentages are as of
April 30, 2002.
o Messrs. Whetsell, Jorns, Emery, Morse and Calder have employment
agreements with MeriStar under which each will receive additional
lump-sum severance benefits upon a termination of his employment
following a change of control of MeriStar. Under the employment
agreements of Messrs. Whetsell, Jorns and Emery, each will also be
entitled to excise tax reimbursement upon such termination. The
merger would constitute a change of control for purposes of these
employment agreements. For more information regarding the severance
provisions of the employment agreements of Messrs. Whetsell, Emery,
Morse and Calder, please refer to Item 11 of MeriStar's Annual Report
on Form 10-K for the year ended December 31, 2001, as amended on
April 30, 2001, under the caption "Employment Agreements--Certain
Severance Benefits." The terms of Mr. Jorns' employment agreement are
substantially similar to those of Mr. Emery's.