Doubletree and Promus Agree to Merge

Doubletree Corp. and Promus Hotel Corp. on Tuesday said they had agreed to merge in a $2.14-billion stock swap, creating the world’s third-largest hotel company, with well-known brands such as Embassy Suites, Hampton Inn and Red Lion.

Doubletree investors--who include Peter Ueberroth, organizer of the 1984 Olympics in Los Angeles--would get one share of a new company, which would take the Promus name, for each of their shares. Promus holders would get 0.925 share, valuing their shares at $41.50 each based on Doubletree’s closing stock price Tuesday.

The move would combine two of the fastest-growing companies in the $58-billion-a-year U.S. hotel industry. Promus’ expertise at franchising hotels combined with Doubletree’s management and upscale chains would forge a rival to competitors Hilton Hotels Corp., ITT Corp.’s Sheraton and Marriott International Inc., analysts said.

The companies said the merger would save $15 million to $20 million a year in costs, while creating opportunities for marketing between the brands.

“Our ability to cross-sell and cross-market our brands will be a key driver of our future growth,” said Promus President and Chief Executive Raymond Schultz, who would be chairman and chief executive of the new company.

The combined company would control 1,136 hotels with 172,000 rooms and 40,000 employees in the U.S. Memphis, Tenn.-based Promus operates the Embassy Suites, Hampton Inn and Homewood Suites, Embassy Vacation Resort and Hampton Vacation Resort chains. Phoenix-based Doubletree has the Doubletree Hotels, Doubletree Guest Suites, Club Hotels by Doubletree and Red Lion brands.

“They don’t step on each other’s toes as much as they complement each other,” said Harry Venezia, an analyst at Raymond James & Associates.

Promus was created out of the old Holiday Inns of America, which sold that chain to Bass in 1988. The company then spun off its casino operations in a separate company called Harrah’s Entertainment Inc. in 1996.

Doubletree, which went public in 1994, was one of the few independent premier hotel brands left after a raft of mergers and acquisitions. In 1996 the company almost doubled its number of hotel rooms, primarily through its $1.2-billion acquisition of the Red Lion chain.

Ueberroth and former United Airlines CEO Richard Ferris, co-chairmen of Doubletree, would serve on the board of the directors of the new company. Doubletree President and Chief Executive Richard Kelleher would serve as president and chief operating officer and succeed Schultz after his retirement.

The planned merger is the latest in series of combinations in the hotel industry, which is generating record profits as it rebounds from overbuilding of the 1980s.

The new board is to have 14 members, half from each company. Along with Ferris and Ueberroth, it would include Promus Chairman Michael Rose.

Doubletree also said it adopted an anti-takeover plan, known as a poison pill.

On the New York Stock Exchange, Promus shares Tuesday rose $1.94 to close at $40.75. Meanwhile, on Nasdaq, Doubletree shares tumbled $5.13 to $44.88.

Doubletree shares had risen strongly at the end of last week on speculation it would be sold.