Starwood rises on upgrade

Edwin McDowell

Thursday, April 8, 1999 | 10:27 a.m.

The shares of Starwood Hotels and Resorts Worldwide Inc. rose $1.1875, or 3 percent, Wednesday to $31.25, after Merrill Lynch upgraded its rating on the company's stock.

Also adding to the increase in Starwood shares was the belief among some institutional investors, who attended a luncheon on Tuesday at which the featured speaker was Barry S. Sternlicht, Starwood's chairman, that Sternlicht intended to sell the Caesars hotels and casinos.

Several people close to the company said Sternlicht was in discussions with Arthur M. Goldberg, chairman of Park Place Entertainment Corp. of Las Vegas, about the possible sale of Caesars. But the people did not know the sale price or asking price for Caesars, perhaps the best-known name in the industry.

Park Place, the newly formed gambling company resulting from Hilton Hotel's spinoff of its gambling business and Park Place's merger with the Mississippi gambling operations of Grand Casinos Inc., is one of the world's two largest gambling companies.

A Starwood spokesman, Jim Gallagher, declined Wednesday night to comment on those talks. But speaking generally, he said, "Starwood has often said that with the creation of shareholder value as its goal, everything we own is for sale at the right price." That includes its Desert Inn property in Las Vegas.

Jason N. Ader, a lodging analyst at Bear, Stearns, has valued Caesars at about $3 billion. In an assessment of Sternlicht's remarks at the luncheon, he said that another possibility could be a spin out of gambling to shareholders like Hilton did. "In the Hilton spinoff," Ader said, "we quickly saw the value of the two separate parts exceed the prespin-out value of the combined company."

Sternlicht has publicly expressed disappointment with the company's gambling results from last year, as industry margins were affected by increased competition and, in Las Vegas especially, a downturn in the number of high-rollers from Asia. But after Starwood acquired Sheraton in February 1998, Sternlicht said he would take about 18 months to learn the gambling business better before making any important decisions.

Ader, the host of Tuesday's luncheon in Manhattan at Starwood's new hotel, said that Sternlicht implied that "he has concluded that two businesses should eventually separate," and that he seemed troubled by the earnings volatility that comes from Caesars heavy reliance on baccarat and that sector's limited growth prospects.

One person, who spoke on the condition of anonymity, said that Sternlicht's lamentations about the volatility of baccarat appeared to reinforce the probability of Starwood's selling Caesars.