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IHG buoyed by bid talk

Shares in InterContinental Hotels continue to outperform our sell advice as rumours of a merger refuse to die
May 7, 2015

Shares in InterContinental Hotels (IHG) are up 18 per cent year on year and 6 per cent in the past four weeks alone. Why? It is hard to say given management's own admission at the annual results in February that 2015 would be dogged by "many macroeconomic and geopolitical instabilities". Last year, the group suffered a double-digit decline in revenue per available room (RevPAR) in Thailand as political instability deterred tourists from travelling to the country.

IC TIP: Hold at 2,804p

But the owner of the Crowne Plaza and Holiday Inn brands has now fallen victim to feverish bid speculation. Rumour has it US rival Starwood Hotels & Resorts is after the London-listed group, but InterContinental's board is said to have rebuffed a £6bn offer already. Some analysts suggest this means the group will put itself up for sale, but keen buyers of the stock are betting on an externally driven high-profile deal. It's no secret that US hedge fund and IHG shareholder Marcato Capital has urged IHG bosses to consider a merger with a rival - Marriott, Hilton, Wyndham, Starwood, Hyatt or Accor - but so far it seems the suggestion has fallen on deaf ears.

Meanwhile, a benign trading statement from orthopaedic specialist Smith & Nephew (SN.) last week hardly explains the stock's 24 per cent rise over the last year. But it's the same issue faced by IHG shareholders: speculation of a deal has been rife for years. It's thought the group is a prime target for Michigan-based medical devices company Stryker (US: SYK).

It's been a busy few weeks for bid speculations. Market whispers say broadcasting giant Sky (SKY) could attract a £28bn takeover by French media conglomerate Vivendi (Fr: VIV), while a 4 per cent share price rise in Twitter (US: TWTR) in early April was put down to a potential Google (US: GOOG) buyout. Even shares in Cambridge-based chip maker Arm (ARM) soared on speculation that Apple (US: AAPL) was considering acquiring the business in a multi-billion dollar deal.