Marriott Vacations Worldwide
plans to expand its footprint, especially on the West Coast, with a $430 million acquisition of Welk Resorts, one of the largest independent timeshare companies in North America.
The deal will give Marriott Vacations Worldwide “eight upper upscale resorts” and help expand its Hyatt-branded timeshare business, JPMorgan analyst Brandt Montour wrote in a note. Welk operates resorts in San Diego, Palm Springs, and Cabo San Lucas in Mexico, among other locations.
Montour wrote that the deal “makes strategic as well as financial sense to us.” He has the stock at Overweight with a price target of $144, some 15% above where it was trading Thursday morning.
But the stock hasn’t done well following the deal. Although it was near $125 Thursday morning, up more than 2% in early trading, the stock lost nearly 11% of its value on Wednesday amid a widespread market rout. The deal was announced Tuesday.
The company is expected to pay for the deal with a combination of stock and cash. It announced Thursday that it had priced a $500 million private offering of senior convertible notes. Uses of the proceeds are expected to include financing the acquisition of Welk and repaying “certain outstanding Welk Resorts debt,” Marriott Vacations said.
The Welk properties, which have about 55,000 owners, will be rebranded as Hyatt Residence Clubs under the Marriott Vacations umbrella. Marriott Vacations said in a release that it expects to improve the margins at the Welk properties.
Montour noted that the “Hyatt-branded timeshare business was subscale and not growing.”
Chris Woronka, an analyst at Deutsche Bank, wrote in a note after the deal was announced that “the real to key to the transaction will be VAC’s ability to leverage the Hyatt branding into higher [volume per guest] and its ability to achieve targeted synergies.”
Volume per guest is a metric used to track timeshare sales.
“Generally, we view consolidation within the timeshare space favorably given the typically synergistic nature of it,” Woronka wrote. “And [we] note that there are relatively few upper upscale or luxury segment timeshare resorts that are not affiliated with a national brand (Welk is one of them).”
Woronka has the stock at a Hold with a price target of $128, about 5% above where it was trading Thursday morning.
The Welk deal also provides Marriott Vacations with “three years of built inventory,” the company said in a release announcing the acquisition.
Write to Lawrence C. Strauss at [email protected]