Blackstone, Starwood Boost Extended Stay Bid Amid Opposition

(Bloomberg) -- Blackstone Group Inc. and Starwood Capital Group increased their offer to buy Extended Stay America Inc. amid mounting opposition to the proposed $6 billion takeover deal.

The private equity firms have agreed to increase their offer by $1 to $20.50 a share, according to a statement Tuesday. That came after Glass Lewis & Co. and Institutional Shareholder Services Inc. came out in opposition to the deal, agreeing with shareholders who had questioned its timing and price.

The shares were up less than 1% at $19.85 as of 9:37 a.m. on Tuesday.

Extended Stay has two boards, one for a real estate investment trust that owns hotel properties, and one for an operating company. The two boards unanimously approved the merger at the higher price.

Blackstone and Starwood announced on March 15 that they agreed to buy Extended Stay for $19.50 a share. Six investors, collectively owning more than 14% of the company’s shares, have separately come forward to voice their concerns about the deal and its terms since it was announced.

Extended Stay, which operates 650 mid-priced hotels, provides longer-term stays to construction crews, emergency responders and cost-conscious corporate workers. That focus helped the company record a systemwide occupancy rate last year of 74%, compared with 44% across the U.S. hotel industry.

Both of the private equity firms have experience with Extended Stay. Blackstone acquired the hotel company in 2004 and sold it three years later. It was also part of a group that bought Extended Stay out of bankruptcy in 2010 and eventually took it public.

Starwood, meanwhile, disclosed last April that it had spent $137 million building a stake in Extended Stay. It owned 9.4% of the company on March 15, the day the initial deal was announced.

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