CapStar Hotel, American General Planning $530-Million Merger

CapStar Hotel Co. and American General Hospitality Corp. on Monday said they will combine in a transaction valued at about $530 million, marrying two fast-growing companies with upscale hotels in major cities across the country.

The combined company, to be known as MeriStar Hospitality Corp., would be the third-largest hotel real estate investment trust, with a market capitalization of about $3 billion. MeriStar Hospitality will work hand in hand with MeriStar Hotels & Resorts Inc., which would operate the hotels.

The arrangement would create the first hotel company to operate as a “paper-clip” REIT. That structure should help the combined company emulate the two largest hotel REITs: Starwood Hotels & Resorts and Patriot American Hospitality Inc. Both are called “stapled” or “paired-share” REITs, because their separate real estate and hotel companies trade as a single stock.

Before the merger, Washington, D.C.-based CapStar is to split into a hotel management company and a REIT, which would own 100 hotels.

CapStar and Dallas-based American General would then combine. Each CapStar share would be exchanged for one share in the new company. American General holders will get about 0.85 share.

The new companies would be based in Washington and own and manage 27,739 hotel rooms in 30 states and Canada. The transaction is expected to be completed in June.