marcato capital - ihg september board presentation

Materials Related to Intercontinental Hotels Group plc September 2014

Strictly Confidential – Do Not Duplicate or Distribute

Strictly Confidential. Not for Distribution.

DISCLOSURE/DISCLAIMER PAGE

Marcato Capital Management LP (“Marcato”) is an SEC-registered investment advisor based in San Francisco, California. Marcato provides investment advisory services to private investment funds (each a “Marcato Fund” collectively, the “Marcato Funds”).

This presentation (the “Presentation”) which has been prepared by Marcato solely for communication to the Board of Directors of InterContinental Hotels Group PLC (“IHG”) is for informational purposes only. The Presentation does not have regard to the specific investment objective, financial situation, suitability or particular need of any specific person who may receive the Presentation, and should not be taken as financial or investment advice. The views expressed in the Presentation represent the opinions of Marcato, and are based on publicly available information, prevailing conditions and Marcato’s analyses. Certain financial information and data used in the Presentation have been derived or obtained from filings made with the Securities and Exchange Commission (“SEC”) or other regulatory authorities by IHG or other companies that Marcato considers comparable. Marcato has not sought or obtained consent from any third party to use any statements or information indicated in the Presentation as having been obtained or derived from a third party. Any such statements or information should not be viewed as indicating the support of such third party for the views expressed. Information contained in the Presentation has not been independently verified by Marcato, and Marcato disclaims any and all liability as to the completeness or accuracy of the information and for any omissions of material facts. Marcato undertakes no obligation to correct, update or revise the Presentation or to otherwise provide any additional materials. Neither Marcato nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy, fairness or completeness of the information contained herein and any recipient may not rely on any such information.

The Presentation may contain forward-looking statements which reflect Marcato’s views with respect to, among other things, future events and financial performance. Forward-looking statements are subject to various risks and uncertainties and assumptions. If one or more of the risks or uncertainties materialize, or if Marcato’s underlying assumptions prove to be incorrect, the actual results may vary materially from outcomes indicated by these statements. Accordingly, forward-looking statements should not be regarded as a representation by Marcato that the future plans, estimates or expectations contemplated will ever be achieved.

The securities or investment ideas listed are not presented in order to suggest or show profitability of any or all transactions. There should be no assumption that any specific portfolio securities identified and described in the Presentation were or will be profitable. Under no circumstances is the Presentation to be used or considered as an offer to sell or a solicitation of an offer to buy any security, nor does the Presentation constitute either an offer to sell or a solicitation of an offer to buy any interest in the Marcato Funds. Any such offer would only be made at the time a qualified offeree receives the Confidential Explanatory Memorandum of a Marcato Fund. Any investment in the Marcato Funds is speculative and involves substantial risk, including the risk of losing all or substantially all of such investment.

Marcato may buy or sell or otherwise change the form or substance of any of its investments in any manner permitted by law and save as required by any applicable regulations expressly disclaims any obligation to notify the market, a recipient of the Presentation or any other party of any such changes.

This Presentation is being issued in the United Kingdom by Marcato only to, and/or is directed only at, persons to or at whom it may lawfully be issued or directed under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 including persons who are authorised under the Financial Services and Markets Act 2000 (“authorised persons”), certain persons having professional experience in matters relating to investments, high net worth companies, high net worth unincorporated associations or partnerships and trustees of high value trusts. The opportunities described in this Presentation are not available to other persons in the United Kingdom and this Presentation must not be relied or acted upon by any such other persons. This Presentation is exempt from the general restriction in Section 21 of the Financial Services and Markets Act 2000 on the communication of invitations or inducements to engage in investment activity on the grounds that it is being issued to and/or directed at only the types of person referred to above. The content of this Presentation has not been approved by an authorised person, for the purpose of Section 21 of the UK Financial Services and Markets Act 2000 or otherwise.

This document (and its contents) are confidential, intended solely for the addressee and is being made available on the basis that the recipients keep confidential any information contained herein or otherwise made available, whether orally or in writing. Such information may not be reproduced, disclosed, redistributed or passed on, directly or indirectly, to any other person or published, in whole or in part, for any purpose without the prior written consent of Marcato. This document is not intended for public use or distribution.

Houlihan Lokey is acting for Marcato and no one else in connection with its interest in IHG and shall not be responsible to anyone other than Marcato for providing protections afforded to clients of Houlihan Lokey or for providing advice in relation to such matter.

1


TABLE OF CONTENTS

2

I. Executive Summary and Recommendation

II. A Unique Time to Consider Alternatives to Enhance Shareholder Value

III. Case Study – Burger King/Tim Hortons Strategic Combination

IV. Review of Strategic Rationale for a Possible Business Combination

V. Pro Forma Analysis

VI. Additional Supporting Details

I. EXECUTIVE SUMMARY AND RECOMMENDATION


INTRODUCTION TO MARCATO

4

Marcato Capital Management LP (“Marcato”) is a San Francisco-based investment manager that owns over 4.0% of outstanding shares of Intercontinental Hotels Group plc (“IHG” or the “Company”), representing an investment of nearly $400 million

Marcato strives to work with companies to optimize value creation for all shareholders, and has a history of successfully working with boards of directors and management teams

Marcato only publicly announced its ownership position in IHG after the reported rejection of an unsolicited offer for the Company by a U.S.-based strategic partner

We seek a constructive dialogue with the Board of Directors of IHG ( the “Board” or the “IHG Board”) and the Company’s Management Team (“Management”)


INTRODUCTION TO HOULIHAN LOKEY – MARCATO’S FINANCIAL ADVISOR

5

Following published reports of an unsolicited offer for IHG, Marcato retained Houlihan Lokey, Inc. (“Houlihan Lokey”) to provide an independent evaluation of IHG and its possible strategic alternatives Houlihan Lokey is a leading independent, international financial advisory and valuation firm, consistently ranked in the forefront of M&A advisors and is the leading provider of valuations and fairness opinions to Boards of Directors(1)

Houlihan Lokey has a devoted Real Estate industry team with extensive experience advising Lodging and Hospitality companies, including:

(1) Source: Thomson Reuters; Houlihan Lokey was the top M&A advisor in 2013 for U.S. transactions under $3 billion with 119 transactions; Houlihan Lokey has been the top provider of M&A fairness opinions from 2004 to 2013 with a total of 440 transactions

Financial Advisor

has reached a settlement regarding enhancement of shareholder value at Strategic Hotels & Resorts, Inc.

Financial Advisor

has successfully completed an activist campaign resulting in Charter Hall Office REIT agreeing to sell its U.S. property portfolio

Sellside Advisor

has been acquired by

Buyside Advisor & Co-Advisor

Acquired out of a Chapter 11 by an investor group

Subsequent IPO of paired common stock

Secondary offering of paired common stock

Fairness Opinion

has been acquired by and

Morgan Stanley Real Estate

Sellside Advisor & Fairness Opinion

has negotiated the acquisition of 61 hotel leases from its principal lessee

Company Advisor

MSR Resort Golf Course, LLC and its affiliates have confirmed a joint Chapter 11 Plan of Reorganization, through which it sold substantially all of its assets to affiliates of GIC Real Estate, Inc.

Co-Manager & Dealer Manager

$225,000,000 7.875% Senior Notes due 2017 And Tender offer & Consent Solicitation $200,000,000 9.25% Senior Notes due 2015

Ad Hoc Mezzanine Advisor

has completed an Extension and Loan Modification with respect to the Mortgage and Mortgage and Mezzanine Loan Agreements

Creditor Advisor

Kerzner International has confirmed an out-of-court restructuring of its more than $3.0 billion in OpCo and PropCo debt


£18.00

£20.00

£22.00

£24.00

£26.00

Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14

May 25, 2014: Press sources report that IHG rejected a £6 billion offer from an unnamed

U.S. company

May 2, 2014: IHG reports Q1

results

August 5, 2014: IHG reports

Q2/H1 results

Source: Capital IQ

May 29, 2014: Marcato issues press release commenting on media reports of

an offer for IHG

March 14, 2014: Marcato begins purchasing IHG

shares

RECENT TIMELINE

6

Price Per Share (Dividend Adjusted)


“Sky News has learnt that IHG's board met a few weeks ago to consider the offer, but dismissed it on

the grounds that it was too low.” May 24, 2014

“Intercontinental Hotels snubs £6bn offer from Americans”

May 25, 2014

On May 25, 2014, The Sunday Times and Sky News each reported that IHG rejected a £6 billion offer from an unnamed U.S. company, which has been suggested to be Starwood or Wyndham This type of unsolicited approach is quite rare in the hospitality industry, and generally would lead to a comprehensive review of strategic alternatives by the IHG Board

Only after a thorough evaluation of alternatives with the assistance of an independent financial advisor can a well-governed board appropriately respond

to an unsolicited offer

REPORTED UNSOLICITED APPROACH

7


DID IHG’S BOARD PERFORM A COMPREHENSIVE REVIEW?

8

As one of the Company’s largest shareholders, Marcato believes that the response of the IHG Board to the unsolicited offer should have included an independent and full review of a range of alternatives and their effect on shareholder value

We are not aware that such an independent review of alternatives was done in its appropriate breadth and depth

As a result, Marcato retained Houlihan Lokey to perform a comprehensive review of the hospitality and M&A landscapes as well as an analysis of a range of strategic alternatives for IHG

We now are asking the IHG Board to perform an independent strategic review

Marcato is not pre-judging the result of the IHG Board’s potential strategic review; however, we urge the Board to take immediate steps to conduct its own analysis with

the assistance of an independent financial advisor


STRATEGIC ALTERNATIVES SHOULD BE PROMPTLY AND CAREFULLY REVIEWED

9

Our research, with the benefit of input from Houlihan Lokey, indicates:

Now is an extremely favorable time in the hotel market cycle – Hotel demand is generally outstripping supply

– Key operating metrics are above historical averages

Tailwinds in the global M&A market should contribute to the Board’s urgency

– Abundance of low-cost financing and elevated cross-border activity

Latent interest exists from several potential partners

Various business combinations could deliver significant and permanent value accretion for IHG shareholders as owners in a stronger international hospitality company

We recommend the Board immediately hire an independent financial advisor and conduct a full and formal evaluation of strategic alternatives and their

impact on shareholder value


10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14

In Marcato’s illustrative business combinations,

IHG could be valued pro forma at 20.5x 2014E Adj.

EBITDA(2), on average

The IHG Board may have a unique and near-term opportunity to permanently revalue the Company for the benefit of all shareholders

Source: Capital IQ and Marcato analysis (1) Data after June 30, 2014 adjusted for July 2014 special dividend (2) See pages 50, 55, 60, 64, 68, and 72 for detailed analysis

UNSOLICITED APPROACH – RUMORED OFFER TEMPORARILY REVALUED IHG

10

May 23, 2014: The Company’s stock traded at a multiple of

14.5x 2014E EBITDA immediately prior to

press reports that IHG rejected an offer

July 4, 2014: Company achieves all-time high valuation of

16.2x 2014E EBITDA, after reported interest of a

third party

EV/2014E EBITDA(1)


Unsolicited Bid Already

Received

Significant Untapped

Interest from Numerous Strategic Partners

Current Sweet-Spot of the Hospitality

Market

Substantial Revenue and

Expense Synergy

Opportunities

Record-Low Interest Rates

and Underutilized

Balance Sheets

Strong M&A Market

Numerous factors make now the ideal time for the IHG Board to evaluate and consider all potential alternatives for enhancing shareholder value

11

A UNIQUE TIME TO ENHANCE SHAREHOLDER VALUE


Incorporating input from Houlihan Lokey, we have identified six “Tier A” strategic partners, each of which we believe would be keenly interested in exploring a possible combination with IHG

A combination of IHG with any of these strategic partners has the potential to:

– Create a powerful and diversified hotel management company with significant global scale

– Enable revenue synergies by, among other things, expanding the largest membership program

– Allow for significant potential cost and tax efficiencies

– Serve as a catalyst to reach optimal capital structure targets

– Produce meaningful long-term earnings accretion and share price appreciation

ONE POTENTIAL ALTERNATIVE – A COMBINATION WITH A LEADING LODGING COMPANY

12

A business combination with any of the "Tier A" partners has game-changing potential for IHG’s business and shareholders, particularly over the long term

Note: “Tier A” strategic partners include Starwood Hotels & Resorts Worldwide Inc. (“Starwood” or “HOT”), Marriott International, Inc. (“Marriott” or “MAR”), Hilton Worldwide Holdings Inc. (“Hilton” or “HLT”), Wyndham Worldwide Corporation (“Wyndham” or “WYN”), Hyatt Hotels Corporation (“Hyatt” or “H”), and Accor S.A. (“Accor” or “AC”)


IHG COULD ACHIEVE A HIGH PRO FORMA VALUATION AND ENJOY FURTHER UPSIDE

13

Note: Assumes 3.5x combined pro forma leverage (net) with the exception of Hilton, which assumes pro forma leverage (net) of 3.6x; illustrative pro forma valuation impact calculated using IHG’s May 23, 2014 unaffected price per share, not adjusted for dividends, and using each potential partner’s September 19, 2014 price per share (1) Neutral EPS impact (“breakeven valuation”) analysis uses a valuation per IHG share such that a business combination is neither EPS accretive nor dilutive to the strategic partner; valuations

could even exceed these if partners willing to withstand upfront dilution

Illustrative Pro Forma Valuation Increase of IHG at

Neutral EPS Impact(1)

Illustrative Pro Forma Valuation Increase of IHG at

Neutral EPS Impact(1) with 7.5% Tax Savings

IHG Shareholder Pro Forma Ownership

+51.2% +81.7% 40.9%

+57.7% +96.5% 32.2%

+83.8% +134.4% 40.3%

+17.2% +38.3% 39.9%

+122.4% +155.3% 64.1%

+39.5% +61.0% 37.1%

In any strategic partnership, we envision a significantly higher pro forma valuation and meaningful retention of ownership for IHG’s shareholders

Each strategic partner has capacity to value IHG significantly above current trading levels in a combination

As part of a strategic review, the IHG Board should determine whether the Company could achieve the same valuation as a standalone company


IDEAL TIMING AND COMPELLING RATIONALE

14

EXIGENT CIRCUMSTANCES STRATEGIC AND FINANCIAL MERIT

When will all of these factors be present at the same time again?

An unsolicited approach has already been reported and we believe the hospitality sector is overdue for consolidation

The hospitality industry and market environments are temporarily favorable

IHG has largely completed its transition to an asset-light business model

We believe there is latent interest from potential strategic partners

Potential for expanded scale and scope (geography, chain scale, systems)

A strategic partnership could serve as the impetus to optimize leverage usage and advance stated asset-light initiatives

Synergy opportunities (revenue and cost) appear to be substantial

Opportunity for significant stock price appreciation, pro forma earnings accretion, and continued equity ownership in a stronger company

II. A UNIQUE TIME TO CONSIDER ALTERNATIVES TO ENHANCE SHAREHOLDER VALUE


• Key industry operating metrics above historical averages • Incremental room demand temporarily exceeding incremental supply

resulting in higher occupancy • IHG’s asset-light transition largely complete as a stand-alone entity

Ideal Point in Company’s and Industry’s Lifecycle

• Pent-up demand in hospitality sector which is overdue for consolidation • Many potential strategic partners have expressed interest in consolidation • Multiple strategic partners have compelling transaction rationales • Underlying interest would be revealed with a formal process

Attractive Universe of Potential Partners

• Record-low interest rates and improved business confidence • Increasing desire for geographic diversification • Intensifying search for revenue growth and expense efficiencies • Market is structurally revaluing companies engaging in synergistic business

combinations

Global M&A Market is Thriving

A RARE AND OPPORTUNE CURRENT ENVIRONMENT

16


Source: PKF Hospitality Research as of June 2014 (1) Note: Lodging has not lagged other sectors in the current Hotel Market Cycle (2) Source: Business Wire, “Fitch: Window Closing for Attractive US Hotel Acquisition Opportunities”, September 3, 2014

2016E/17E

Rapid Development

Rapid Development

Lodging Decline, Leads Other Sectors

Occupancy Declines, ADR

Follows

Development Slows

Development at Minimum Levels

Lodging Recovers, Lags Other Sectors(1)

Occupancy Recovers

ADR and Margins Recover

Development Picks Up

2015E

2014

2013

Current Spot in Cycle

FAVORABLE SPOT IN THE HOTEL MARKET CYCLE

17

Hotel Market Cycle

“The window of opportunity is closing for lodging companies to make attractive hotel acquisitions during this upcycle….”

Fitch Ratings, September 3, 2014(2)


$80

$90

$100

$110

$120

$130

$140

$150

2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E

Average Daily Rate (U.S.)

FAVORABLE INDUSTRY TRENDS

18

54%

56%

58%

60%

62%

64%

66%

2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E

Occupancy Rates (U.S.)

$50

$55

$60

$65

$70

$75

$80

$85

$90

2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E

RevPAR (U.S.)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2012 2013 2014E 2015E 2016E 2017E 2018E

Supply vs. Demand (U.S.)

∆ Supply ∆ Demand

All key industry metrics are well above their long-run averages

2014 - 2016 CAGR 5% vs. 3% Long-run Average

2014 - 2016 CAGR 6% vs. 3% Long-run Average

62% Long-run Average

Source: PKF Hospitality Research as of June 2014 Note: Long-run average is from 1988 through 2013


IHG UPSIDE MIGHT BE LIMITED ON A STANDALONE BASIS

19

Feedback from industry participants suggests that IHG has the following most notable opportunities for improvement, which are difficult to address to a sufficient extent on a standalone basis: – Breadth and depth of brand portfolio, important for gaining corporate business market share

– Aspirational quality of loyalty program

– Competitive positions in the Upscale and Luxury hotel segments

– Cost structure efficiency and balance sheet utilization

As reflected in the table below, many research analysts seem to believe that the Company has limited upside under the current standalone business plan

% Strong Buy 4% 22% 22% 0% 30% 29% 23%

% Buy 20% 56% 33% 61% 50% 24% 41%

% Hold 64% 22% 37% 39% 20% 43% 36%

% Underperform 8% 0% 4% 0% 0% 5% 0%

% Sell 4% 0% 4% 0% 0% 0% 0%

“[IHG’s] valuation looks full unless consolidation occurs….” Credit Suisse, June 24, 2014

Source: Thomson as of September 19, 2014


20

RECENT RESEARCH OPINIONS ARE CONSISTENT WITH OUR OUTLOOK ON IHG’S “MATURITY”

“From a strategic standpoint, InterContinental Hotels is nearing the ‘end-game’ in terms of transitioning to a fully asset-light model….”

Goldman Sachs, May 16, 2014

“Our Equal Weight rating reflects that we believe the current valuation reflects [high ROCE, strong management, and good FCF conversion] and we hence prefer other European hotel names.”

Barclays, July 16, 2014


21

CURRENT POSITION OF POTENTIAL PARTNERS IS HIGHLY CONDUCIVE TO TRANSFORMATION

Numerous strategic partners have compelling reasons to explore a partnership with IHG at this time

Shareholder pressure to unlock value Excellent geographic and chain scale fit

Seeking to maintain premium valuation by extending system relevance, efficiency, and growth

Interest in pursuing opportunistic combinations Subscale relative to other hospitality companies

Desire to diversify geographically Would balance Accor’s more asset-heavy strategy

Desire to deleverage its balance sheet, reduce its financial sponsor stake, and increase its publicly traded float

Seeking to unlock value and elevate brand Rumored to have already expressed interest in a partnership


ADDITIONAL VALUE COULD BE HARNESSED

22

Room Count 696,926 693,980 693,072 650,200 506,523

Headquarters U.S. U.S. U.K. U.S. U.S.

Room Count 470,878 400,000 349,570 256,555 235,000

Headquarters France U.S. U.S. China China

Room Count 220,000 166,446 152,879 149,640 142,500

Headquarters U.S. China China U.S. U.S.

IHG is one of the few major global brand companies left that can significantly add scale in a consolidation

Source: Company publications; Hotels Magazine (July/August 2014)


Source: RCA; Goldman Sachs Global Investment Research

FAVORABLE HOSPITALITY M&A MARKET

23

Hotel deal volumes are rising and near multi-year highs

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

Q12008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

Q12010

Q22010

Q32010

Q42010

Q12011

Q22011

Q32011

Q42011

Q12012

Q22012

Q32012

Q42012

Q12013

Q22013

Q32013

Q42013

Q12014

$ in

mill

ions

Volume of U.S. Hospitality Industry Deals


Strategic Rationale Structural enablement of higher revenue growth and cost efficiencies

Substantial Capital on the Sidelines

Approximately $1.6 trillion of capital is held by corporate America Financial sponsors have approximately $440 billion of equity capital to invest

Liquidity

Historically low borrowing costs Cash build-up at all-time highs Equity markets remain highly accessible

Valuations Valuations are at multi-year highs

Source: News articles and Wall Street research; Preqin, February 2014

CURRENT TRANSACTION ENVIRONMENT IS STRONG

24

Participants in synergistic combinations are being materially revalued by the markets

III. CASE STUDY – BURGER KING/TIM HORTONS STRATEGIC COMBINATION


CASE STUDY: BURGER KING AND TIM HORTONS

26

On August 26, 2014, Burger King Worldwide, Inc. (“BKW” or “Burger King”) and Tim Hortons Inc. (“THI” or “Tim Hortons”) announced a merger, sending the share price of both companies up over 20% immediately following reports of the merger – This lauded merger has striking similarities to the opportunities we believe are currently available

to IHG We can envision an IHG press release with similar stated strategic rationale: – "The combination generates substantial value for shareholders of both companies and provides

the opportunity for shareholders to participate in the new company's long-term value creation potential. In addition to meaningful revenue synergies created from accelerated international growth, the transaction is expected to achieve cost savings through leveraging the new company's global scale and the sharing and implementation of best practices"

– "Will create a new global powerhouse" – "Bringing together two iconic companies under common ownership" – "Benefit from global scale and reach,… international footprint and significant growth potential" Financial Highlights: – Berkshire Hathaway is providing ~$3 billion in preferred equity – Over 40% headline pro forma valuation increase over unaffected price – Pro forma Net Debt/EBITDA of over 5.0x (over 7.0x including preferred equity)

Source: Company publications

The Burger King/Tim Hortons example is particularly instructive and IHG may have the potential to pursue a similar transformational business partnership


27

Comparable?

Industry Consumer Brand/Service Consumer Brand/Service Asset-Light Mix(1) 99+% 99% Unaffected Market Cap (Pre-Transaction) $8.3 billion $9.0 billion(2) LTM EBITDA(3) $751 million $715 million

Synergy Opportunities

Scale Benefits International Growth Best Practices Expenses Other

Scale Benefits International Growth Best Practices Expenses Other

Domicile Canada (non-U.S.) U.K. (non-U.S.) Financial Leverage (Net Debt/LTM EBITDA) 1.8x 1.5x(4) Financial Sponsors 3G/Berkshire Hathaway TBD/Marcato? ? Value Creation ~40+% ? ?

CASE STUDY: BURGER KING AND TIM HORTONS (CONT.)

There are remarkable similarities between Tim Hortons and IHG Source: Company publications; Bloomberg, Capital IQ, Marcato estimates (1) Note: Calculated by dividing franchised and managed units by total units (2) Based on May 23, 2014 unaffected share price, not adjusted for dividends; see page 74 for details (3) Per Capital IQ for Tim Hortons, converted at CAD/USD spot rate as of September 19, 2014; per Marcato estimates for IHG (4) Net debt calculated as loans and other borrowings less cash and equivalents, less equity securities available-for-sale, less loans and receivables, and pro forma for announced asset disposals

and July 2014 special dividend


-10%

0%

10%

20%

30%

40%

50%

60%

1-Aug-14 16-Aug-14 31-Aug-14 15-Sep-14


28 Source: Capital IQ

August 24, 2014: Media reports of

possible merger of the two companies

“Significant upside for potentially new company. We are upgrading our rating on Burger King shares from Underperform to Buy and increasing our price objective from $23 to $38.”

August 25, 2014 (emphasis added)

The Burger King/Tim Hortons merger has received widespread acclaim from analysts and shareholders of both companies

“[W]e believe corporate cost savings opportunities and revenue synergies could be meaningful. A key benefit of a combination would be THI's ability to leverage BKW's significant international presence and master-franchisee network to accelerate its own global growth expansion ambitions.”


“We think the real motivation for a BKW take over of THI is about making THI into the asset-lite model that has worked so well for BKW, and accelerating international expansion….”


Total Shareholder Return


8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

Sep-2009 Sep-2010 Sep-2011 Sep-2012 Sep-2013 Sep-2014


29 Source: Capital IQ, company publications

THI Average Valuation: 11.5x

Prior to the announced transaction, Tim Hortons valuation had effectively flat-lined, despite very strong same store sales growth and an asset-light business model

“By bringing these two iconic brands under a single, powerful platform, we will be able to create more value than either company could deliver on its own.”

Alex Behring da Costa, Chairman of Burger King (emphasis added)

EV/LTM EBITDA

IV. REVIEW OF STRATEGIC RATIONALE FOR A POSSIBLE BUSINESS COMBINATION


Geographic Opportunity Chain Scale Opportunity Asset-Light Opportunity G&A Expense Opportunity System Fund Opportunity Cost of Capital Opportunity

The six "Tier A" strategic partners have unique and compelling rationales for a business combination and we believe would be keenly interested in exploring a combination with IHG if provided access

Each of these companies would be a fit for IHG by broadening its geographic footprint in the most desirable hospitality markets, expanding chain scale diversification, increasing asset-light earnings, realizing cost savings, improving system fund benefits, and lowering cost of capital

POTENTIAL “TIER A” STRATEGIC PARTNERS

31

The numerous “ways to win” for each strategic partner should enable IHG to command an especially high pro forma valuation


($ in millions) Selected Rationale Notes

Market Cap: $14,553 Combined with IHG, would create the largest and most valuable hospitality company in the world Current shareholder discontent could compel Starwood to pursue a transformative and value-unlocking transaction Excellent geographic and chain scale fit, and would likely secure market leadership in China

LTM Net Revenue: 3,333

LTM Adj. EBITDA: 1,219

EV/LTM Adj. EBITDA: 14.5x

Market Cap: $21,226 Combined with IHG, would create the largest and most valuable hospitality company in the world Marriott is seeking to maintain its recent higher valuation by expanding system scale and elevating its brand Combination with IHG an opportunity for geographic and chain scale diversification and expansion




Market Cap: $24,370 Combined with IHG, would likely cement position as the largest and most valuable hospitality company in the world Stated desire to deleverage its balance sheet, reduce its financial sponsor stake, and increase in publicly traded float – all of which could be facilitated through a partnership with IHG Hilton has experience in realizing significant synergies, and thus may be able to deliver a particularly attractive valuation for IHG shareholders




Source: Capital IQ, company publications, Marcato analysis Note: Market data as of September 19, 2014 Note: Adj. EBITDA is pre-stock-based-compensation expense

POTENTIAL “TIER A” STRATEGIC PARTNERS (CONT.)

32


($ in millions) Selected Rationale Notes

Market Cap: $10,190 Wyndham has a similar asset-light strategy and a history of growing through business combinations Bringing together IHG and Wyndham would help build chain scale diversification and a stronger geographic footprint Presents the potential for cross-selling opportunities with Wyndham’s non-hotel hospitality business




Market Cap: $9,535 Combination with IHG an opportunity for geographic and chain scale diversification and expansion A partnership with IHG would help Hyatt resolve concerns that the company is subscale Hyatt has stated that an asset-light portfolio would be ideal, which could be catalyzed through a combination with IHG


LTM Adj. EBITDA: 727


Market Cap: $10,930 Desire to diversify geographically, particularly in North America Would balance Accor’s more asset-heavy strategy IHG’s Upper Midscale offerings, namely Holiday Inn and Holiday Inn Express, would add chain scale diversity, as Accor is primarily focused in the Upscale and Midscale segments




POTENTIAL “TIER A” STRATEGIC PARTNERS (CONT.)

33

Source: Capital IQ, company publications, Marcato analysis Note: Market data as of September 19, 2014 Note: Adj. EBITDA is pre-stock-based-compensation expense Note: Accor financials converted from EUR to USD at 1.2832 rate

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=aUFThVj0AUZidM&tbnid=XheLLAT7WZCJUM:&ved=0CAUQjRw&url=http://www.iraqiembassy.us/in-the-news/wyndham-hotel-opens-in-iraq&ei=OBjYU5G0G8T0oAT1koCQCw&bvm=bv.71778758,d.cGU&psig=AFQjCNFC44BXSR9pyXSQ_i72Em-d4RWuAg&ust=1406757301031596


Brand cross-selling and expanded guest choice

Greater direct bookings

Combined system funds should lead to indirect revenue benefits

Adoption of operational best practices

An expanded rewards program has the potential to dramatically increase customer loyalty and fortify barriers to entry


0

20

40

60

80

100

120

140 Current Rewards Program Pro Forma Rewards Program

POTENTIAL FOR SIGNIFICANT REVENUE SYNERGIES

34

Rewards Members (in millions)


Total Rooms by Chain Scale (Status Quo & Pro Forma)

IHG’s Upper Midscale footprint fits well with numerous potential partners


CHAIN SCALE DIVERSIFICATION OPPORTUNITY

35

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000 Other Economy Midscale Upper Midscale Upscale Upper Upscale Luxury


Total Rooms by Geographic Location (Status Quo & Pro Forma)


IHG’s geographic mix also fits well with multiple strategic partners

GEOGRAPHIC DIVERSIFICATION OPPORTUNITY

36

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000 Americas EMEA Asia/Pacific Other


0

50

100

150

200

250

Num

ber o

f Roo

ms

(in th

ousa

nds)

Current System Current Pipeline Pro Forma System Pro Forma Pipeline

The potential to dramatically increase the combined company’s presence in China could be an additional factor in the Company receiving a substantially higher pro

forma valuation in a transaction with any of the "Tier A" partners

Source: STR Global as of August 2014 Note: Greater China includes Hong Kong and Macau

Total Rooms in Greater China

POTENTIAL TO ESTABLISH FORMIDABLE POSITION IN CHINESE MARKET

37


Combinations with IHG will generally increase each partner’s asset-light business mix

Source: Company publications; Marcato analysis

LTM Asset-Light EBITDA as a % of LTM Total EBITDA

ASSET-LIGHT BUSINESS MIX OPPORTUNITY

38

30%

40%

50%

60%

70%

80%

90%

100% Status Quo % LTM EBITDA Asset-Light

Pro Forma % LTM EBITDA Asset -Light


$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$ in

mill

ions

POTENTIAL TO CREATE MOST VALUABLE HOTEL COMPANY IN THE WORLD

39

Market Capitalization

Source: Marcato analysis Note: Market capitalization for IHG as of May 23, 2014 unaffected share price, not adjusted for dividends; market capitalization for partners as of September 19, 2014; assumes $175 million in synergies for each potential partner, except Hyatt which assumes $100 million, valued at the industry median multiple (see page 43 for details)


0

200

400

600

800

1,000

1,200

1,400

1,600

Room

s in

thou

sand

s POTENTIAL TO CREATE LARGEST HOTEL COMPANY BY ROOMS

40

Total Rooms - Global



0

20

40

60

80

100

120

140

160

180

Room

s in

thou

sand

s POTENTIAL TO SECURE CHINA MARKET LEADERSHIP

41

Total Rooms – Greater China

Source: STR Global as of August 2014 Note: Greater China includes Hong Kong and Macau


Source: Company publications; Marcato analysis (1) G&A expense not separable from other operating expenses in public filings

MEANINGFUL POTENTIAL COST SYNERGIES AVAILABLE

42

After a review by Houlihan Lokey, we estimated G&A cost savings for each of the potential partners based on size, geographic overlap, asset strategy, cost benchmarking, and other quantitative and qualitative methods Estimated range of annual G&A savings of $150 – $200 million for all potential partners, except Hyatt at $75 – $125 million given its relative size – As shown below, this estimated G&A cost savings represent at most 26% of total combined G&A

for the peer group

We believe there would be meaningful cost synergies available to IHG and any of these strategic partners

($ in million, unless stated otherwise)

Median Average

Total 2013A G&A $374 $389 $702 $409 $717 $299 NA(1) $409 $503

Combined Total 2013A G&A -- 763 1,076 783 1,091 673 NA 783 877

Estimated Cost Savings as % of Combined G&A (Low) 20% 14% 19% 14% 11% NA 14% 16%

Estimated Cost Savings as % of Combined G&A (High) 26% 19% 26% 18% 19% NA 19% 21%


We estimate that G&A synergies alone could create over $2.5 billion in value for IHG and its potential strategic partners

Source: Bloomberg, Capital IQ, company publications, Marcato estimates Note: Accor financials converted from EUR to USD at 1.2832 rate (1) Market capitalization for IHG as of May 23, 2014 unaffected share price, not adjusted for dividends (2) Market capitalization for partners as of September 19, 2014 (3) Neutral EPS impact scenario (“breakeven valuation”) assumes 3.5x pro forma Adj. Net Debt/2014E Adj. EBITDA with the exception of Hilton which assumes 3.6x (4) Using midpoint of estimated range (see page 42 for discussion of potential cost savings) (5) Based on median EV/LTM Adj. EBITDA multiple for Starwood, Marriott, Hilton, Wyndham, Hyatt, and Accor (see page 74 for list of peer multiples) (6) Calculated by taking synergy value, multiplied by pro forma ownership, divided by market cap

($ in millions)

IHG Market Cap(1) $8,963 $8,963 $8,963 $8,963 $8,963 $8,963

Partner Market Cap(2) 14,553 21,226 24,370 10,190 9,535 10,930

Combined Market Cap $23,516 $30,189 $33,333 $19,153 $18,498 $19,893

IHG Pro Forma Ownership(3) 40.9% 32.2% 40.3% 39.9% 64.1% 37.1%

Partner Pro Forma Ownership(3) 59.1% 67.8% 59.7% 60.1% 35.9% 62.9%

Cost Synergies(4) $175 $175 $175 $175 $100 $175

Industry Median Multiple(5) 14.7x 14.7x 14.7x 14.7x 14.7x 14.7x

Synergy Value $2,571 $2,571 $2,571 $2,571 $1,469 $2,571

% Value Creation for IHG(6) 11.7% 9.2% 11.6% 11.4% 10.5% 10.6%

% Value Creation for Partner(6) 10.4% 8.2% 6.3% 15.2% 5.5% 14.8%

IMPACTFUL POTENTIAL COST SYNERGIES AVAILABLE

43


EPS Breakeven Analysis Status Quo 2015E Net Income $605 $836 $809 $616 $218 $547

(+) IHG 2015E Adj. EBITDA 822 822 822 822 822 822 (+) Cost savings(2) 175 175 175 175 100 175 (-) IHG D&A(3) (100) (100) (100) (100) (100) (100) (-) Stock-based compensation(4) (26) (26) (26) (26) (26) (26) (-) Incremental interest(5) (252) (284) (63) (267) (220) (393) (-) Incremental taxes(6) (201) (191) (263) (196) (187) (155)

Pro Forma 2015E Net Income $1,023 $1,233 $1,355 $1,024 $606 $870

Status Quo Diluted Shares Outstanding 173 294 985 124 150 233 Pro Forma Diluted Shares Outstanding 292 433 1,648 206 417 371

2015E Status Quo EPS $3.50 $2.84 $0.82 $4.98 $1.46 $2.35 2015E Pro Forma EPS $3.50 $2.84 $0.82 $4.98 $1.46 $2.35

Breakeven Valuation of IHG per Share $56.64 $59.08 $68.88 $43.93 $83.32 $52.26 % Over Unaffected Share Price(7) 51.2% 57.7% 83.8% 17.2% 122.4% 39.5% Implied EV/2015E Adj. EBITDA 14.7x 15.3x 17.6x 11.6x 22.8x 13.6x

SIZABLE POTENTIAL MERGER VALUATIONS WITHOUT TAX EFFICIENCIES

44

Source: Bloomberg consensus, Company filings, Marcato estimates Note: Accor financials converted from EUR to USD at 1.2832 rate (1) Breakeven valuation analysis uses a valuation of IHG per share such that a business combination is neither EPS accretive nor dilutive to the pro forma combined entity (2) Midpoint of estimated range (see page 42 for discussion of potential cost savings) (3) Assumes an incremental $13 million of D&A from step-up on depreciable and amortizable assets (4) Assumes growth rate in stock-based compensation of 9% and 7% in 2014E and 2015E respectively (5) Assumes 5.5% interest expense on incremental net debt and 3.5x pro forma adj. Net Debt/2014E EBITDA with the exception of Hilton which assumes 3.6x (6) Assumes 32.5% effective tax rate (7) As of May 23, 2014 unaffected price per share, not adjusted for dividends

Strategic partners could offer a very attractive pro forma valuation for IHG

Breakeven Valuation Analysis (Neutral EPS Impact)(1)


Earnings Before Taxes (2015E)(2)

Standalone Status Quo $896 $1,239 $1,199 $912 $323 $811 (+) IHG(3) 620 587 808 605 576 478

Pro Forma Earnings Before Taxes $1,515 $1,826 $2,007 $1,517 $898 $1,289

Status Quo Tax Expense @ 32.5% Tax Rate 493 593 652 493 292 419

Pro Forma Tax Expense(4) 379 456 502 379 225 322

Tax Savings 114 137 151 114 67 97

Tax Savings Per Share $0.39 $0.32 $0.09 $0.55 $0.16 $0.26

% Incremental Accretion 11.1% 11.1% 11.1% 11.1% 11.1% 11.1%

Breakeven Valuation of IHG per Share 7.5% improvement in Pro Forma Tax Rate(4) $68.07 $73.61 $87.83 $51.80 $95.66 $60.31

% Over Unaffected Share Price(5) 81.7% 96.5% 134.4% 38.3% 155.3% 61.0%

EVEN HIGHER POTENTIAL VALUATIONS WITH TAX EFFICIENCIES

45

Tax efficiency opportunities further enhance an already appealing long-term value-creation opportunity

Breakeven Valuation Analysis (Neutral EPS Impact) Including Tax Efficiencies (1)

Source: Bloomberg, company publications, Marcato estimates Note: Accor financials converted from EUR to USD at 1.2832 rate (1) Breakeven valuation analysis uses a valuation of IHG per share such that a business combination is neither EPS accretive nor dilutive to the pro forma combined entity (2) Does not include stock-based compensation expense (3) IHG also adjusted for announced asset disposals and liquidated damages (4) 7.5% improvement in pro forma tax rate based on midpoint of ~5-10% estimated range of improvement in pro forma tax rate (5) As of May 23, 2014 unaffected price per share, not adjusted for dividends

V. PRO FORMA ANALYSIS


Would create the largest and most valuable lodging company in the world IHG and Starwood both employ asset-light strategies, which together would likely command an industry-high valuation Excellent geographic fit, particularly augmentation of U.S. and China footprints Uniting IHG's Upscale/Upper Midscale brands with Starwood's Luxury/Upper Upscale brands would result in strong chain scale balance, with no chain scale representing more than half of the combined portfolio by room count Starwood has been active in M&A historically, and has competencies in pursuing synergies Starwood’s shareholders are pressuring the company to make meaningful changes to unlock shareholder value which could compel Starwood to move quickly and aggressively in pursuing a transformative strategic partnership The IHG Board should consider the risk that Starwood might otherwise combine with other competitors and leave IHG at a material and structural disadvantage

STRATEGIC RATIONALE

47

82% Increased Valuation

w/ 7.5%

improvement in tax rate


w/ no tax rate improvement

HOT 59%

IHG 41%

IHG Shareholders Can Receive a Compelling Valuation While Retaining Significant Ownership

Note: Figures for neutral EPS impact (“breakeven valuation”) scenario (see page 50 for additional details)


Brand Portfolio

Source: Company publications; STR 2014 Chain Scales Note: Starwood’s independent brands, totaling 18 properties, not shown

BREADTH AND DEPTH OF BRAND PORTFOLIO

48

Luxury Upper Upscale Upscale Upper Midscale Midscale Economy

~

~

~

~

= Significant Exposure ~ = Limited Exposure = No Exposure



Starwood Geographic Exposure by Rooms Pro Forma Geographic Exposure by Rooms

Starwood Chain Scale Exposure by Rooms Pro Forma Chain Scale Exposure by Rooms

- Americas

- EMEA

- Other

- Asia/Pacific

58%

17%

25%

63%

22%

15%

9%

25% 18%

42% 3% 3%

GEOGRAPHIC AND CHAIN SCALE MIX

49

- Upper Midscale

- Midscale

- Other

- Economy

- Upscale

- Upper Upscale

- Luxury

A combination with IHG would allow Starwood access to the Upper Midscale segment

10% 73%

14%

3%


Source: Bloomberg, company publications, Marcato estimates Note: Other than price per share, all numbers expressed in millions of USD (1) As of May 23, 2014 unaffected price per share, not adjusted for dividends (2) Share price in USD based on $1.6832 GBP/USD (3) Loans and other borrowings less cash and equivalents, less equity securities available-for-sale, less loans and receivables (4) Adj. EBITDA is pre-stock-based-compensation expense; IHG is also adjusted for announced asset disposals and liquidated damages (5) Assumes an incremental $13 million of D&A from step-up on depreciable and amortizable assets (6) Assumes growth rate in stock-based compensation of 9% and 7% in 2014E and 2015E respectively (7) Assumes 5.5% interest expense on incremental net debt (8) Assumes 32.5% effective tax rate

FINANCIAL IMPACT OF ILLUSTRATIVE BUSINESS COMBINATION

50

Starwood could offer IHG a compelling valuation without incurring earnings dilution while maintaining an investment grade credit rating

Breakeven Valuation Analysis (Neutral EPS Impact) Sources/Uses

Status Quo 2015E Net Income $605 IHG 2015E Adj. EBITDA 822

(+) Cost savings(4) 175 (-) D&A(5) (100) (-) Stock-based compensation(6) (26) (-) Incremental interest(7) (252) (-) Incremental taxes(8) (201)

Pro Forma 2015 Net Income $1,023

Status Quo Diluted Shares Outstanding 173 Pro Forma Diluted Shares Outstanding 292

2015E Status Quo EPS $3.50 2015E Pro Forma EPS $3.50

Breakeven Valuation Per IHG Share $56.64

% Over Unaffected Share Price 51.2% Implied EV/2015E Adj. EBITDA 14.7x

Uses of Funds Sources of Funds Unaffected Share Price(1) £22.26 2014E Adj. EBITDA $1,258 Share Price in USD(2) $37.47 IHG Adj. EBITDA 753

% Increase in Valuation 51.2% Cost Synergies 175

Purchase Price Per Share $56.64 Pro Forma Adj. EBITDA $2,187 Diluted Shares Outstanding 239 Target Leverage 3.5x

Equity Value $13,548 Total Net Debt $7,653 (+) Adj. Net Debt(3) 1,086 Current Net Debt 3,079 (-) 2H 2014E FCF (142) Incremental Debt $4,574

Enterprise Value $14,493 Equity 10,068 (+) Transaction fees 150 Total Sources $14,643

Transaction Value $14,643 % Debt 31.2% EV/2014E Adj. EBITDA 19.2x % Equity 68.8%

+$175 million Synergies 15.6x Pro Forma Ownership Existing shareholders 59.1% IHG shareholders 40.9%


“When asked about the potential for another Le Méridien style acquisition, Mr. Prabhu noted that at the right price the appetite for a brand acquisition is very high…. He believes that the lodging industry is in need of consolidation to help spread the fixed costs over more assets and achieve greater scale.”

Credit Suisse, February 7, 2011 (emphasis added)

51

“I think, still to this day, the Le Méridien transaction represents the perfect example of what we would ideally like to do, which is to find global high-end brands that have a footprint that either matches or complements ours, that's asset-light and can create value for our shareholders.”

– Frits van Paasschen, CEO of Starwood Starwood Hotels & Resorts Worldwide Q1 2012 Earnings Call, April 26, 2012


Would create the largest and most valuable lodging company in the world IHG and Marriott both employ asset-light strategies, which together would likely command an industry-high valuation (Marriott’s current valuation is 17.5x EV/LTM Adj. EBITDA(1)) A partnership with IHG would be a path for Marriott to maintain its recent higher valuation by expanding system scale and elevating its brand IHG’s extensive footprint in Upper Midscale would be a tremendous addition to the Marriott portfolio, which has considerably less established Upper Midscale brands A combination with IHG would be an opportunity for geographic diversification and expansion, with a notable boost to its exposure in China Marriott has been willing to partner with other companies in the past and we believe would participate in a process with IHG if invited

STRATEGIC RATIONALE

52

MAR 68%

IHG 32% 97%

Increased Valuation

w/ 7.5%




(1) As of September 19, 2014 (2) Note: Figures for neutral EPS impact (“breakeven valuation”) scenario (see page 55 for additional details)

IHG Shareholders Can Receive a Compelling Valuation While Retaining Significant Ownership(2)


~ ~

Source: Company publications; STR 2014 Chain Scales


53

Brand Portfolio


~

~

~

~ = Significant Exposure ~ = Limited Exposure = No Exposure



83% 10%

7%

74%

17%

9%

8%

19% 30%

39% 2% 2%


54

Marriott Geographic Exposure by Rooms Pro Forma Geographic Exposure by Rooms

Marriott Chain Scale Exposure by Rooms Pro Forma Chain Scale Exposure by Rooms

- Americas

- EMEA

- Other

- Asia/Pacific

- Upper Midscale

- Midscale

- Other

- Economy

- Upscale

- Upper Upscale

- Luxury

A combination with IHG would improve Marriott’s market positions across geographies and chain scale segments

8%

38% 39%

14% 1%


Sources/Uses


% Increase in Valuation 57.7% Cost Synergies 175 Purchase Price Per Share $59.08 Pro Forma Adj. EBITDA $2,394

Diluted Shares Outstanding 239 Target Leverage 3.5x Equity Value $14,133 Total Net Debt $8,379

(+) Adj. Net Debt(3) 1,086 Current Net Debt 3,212 (-) 2H 2014E FCF (142) Incremental Debt $5,167





55

Marriott could offer IHG a compelling valuation without incurring earnings dilution while maintaining an investment grade credit rating

Breakeven Valuation Analysis (Neutral EPS Impact)










“So I think as we grow, and you think of our growth of 4% to 5% growth of gross rooms, to get to those kind of numbers, when you have 650,000, 700,000 rooms, it's hard to do 1 room at a time. And to really get that presence, you can use the strength of your balance sheet, the strength of your systems to grab one of these niche brands, tie in your global machines, your reservations, marriott.com, Marriott Rewards, all those powerful machines, and lift them up right where they're at and then expand them right there. So I think you'll see more, not less.”

– Carl Berquist, CFO of Marriott JP Morgan Investor Conference, March 7, 2013

Source: Capital IQ Transcripts 56


A partnership with IHG would likely cement the combined company as the largest and most valuable lodging company in the world Hilton has stated a desire to deleverage its balance sheet, reduce its financial sponsor stake, and increase its publicly traded float – all of which could be facilitated through a partnership with IHG Hilton has experience in realizing significant synergies, and thus may be able to deliver a particularly attractive valuation for IHG shareholders Hilton is internationally diversified with significant operations in many of the same geographies as IHG; however, a combination with IHG would notably boost its exposure in China Hilton would benefit from IHG’s franchising expertise to help advance its current asset-light strategy A combined IHG/Hilton would establish an imposing presence in the Upper Midscale segment

STRATEGIC RATIONALE

57

HLT 60%

IHG 40%


w/ 7.5%







Source: Company publications; STR 2014 Chain Scales


58

Brand Portfolio


~

~

~




81%

12% 6%

1% 73%

18%

8% 1%

6%

19%

25%

46% 2% 2%


59

Hilton Geographic Exposure by Rooms Pro Forma Geographic Exposure by Rooms

Hilton Chain Scale Exposure by Rooms Pro Forma Chain Scale Exposure by Rooms

- Americas

- EMEA

- Other

- Asia/Pacific

- Upper Midscale

- Midscale

- Other

- Economy

- Upscale

- Upper Upscale

- Luxury

A combination with IHG would allow Hilton to improve its footprint in Europe and China

3%

37% 31%

29% 0%










60

Hilton could offer IHG a compelling valuation without incurring earnings dilution while possibly achieving an investment grade credit rating

Sources/Uses Breakeven Valuation Analysis (Neutral EPS Impact)





Status Quo Diluted Shares Outstanding 985 Pro Forma Diluted Shares Outstanding 1,648





Wyndham has a similar asset-light strategy and a history of growing through business combinations Bringing together IHG’s generally higher-end brands with Wyndham’s primarily Economy and Midscale brands would help build chain scale diversification A combination of IHG and Wyndham would enhance each partner’s geographic footprint There would likely be significant cross-selling opportunities with Wyndham’s non-hotel hospitality businesses, which generate substantial cash flow A combination with IHG would create a path for Wyndham to unlock the value of its lodging business segment and improve total valuation due to a favorable mix shift

STRATEGIC RATIONALE

61

WYN 60%

IHG 40% 38%

Increased Valuation

w/ 7.5%







~


62 Source: Company publications; STR 2014 Chain Scales

Brand Portfolio


~

~

~




77%

8%

15%

71% 17%

12%

5% 3%

10%

34%

18%

28% 2%


63

Wyndham Geographic Exposure by Rooms Pro Forma Geographic Exposure by Rooms

Wyndham Chain Scale Exposure by Rooms Pro Forma Chain Scale Exposure by Rooms

- Americas

- EMEA

- Other

- Asia/Pacific

- Upper Midscale

- Midscale

- Other

- Economy

- Upscale

- Upper Upscale

- Luxury

A combination with IHG would allow Wyndham to gain exposure to high margin segments of the hospitality market

6% 3%

33%

58%










64

Wyndham could offer IHG a compelling valuation without incurring earnings dilution while maintaining an investment grade credit rating











Hyatt has been a net buyer over time and management has expressed interest in pursuing opportunistic combinations A partnership with IHG would help Hyatt resolve concerns that the company is subscale Hyatt has stated that an asset-light portfolio would be ideal, which would be catalyzed through a combination with IHG Hyatt has indicated an interest in growing geographically and aligns well with IHG’s expansion effort in China Hyatt’s brand portfolio is primarily comprised of high-end brands, meaning that combining with IHG could serve as a plug-and-play Upscale/Upper Midscale offering

STRATEGIC RATIONALE

65

H 36%

IHG 64%


w/ 7.5%







Brand Portfolio


~

~

~

Source: Company publications; STR 2014 Chain Scales Note: Hyatt Ziva (All Inclusive), Hyatt Zilara (All Inclusive), and Hyatt Residence Club (Branded Residential) not shown


66 = Significant Exposure ~ = Limited Exposure = No Exposure



71%

12% 15%

2%

67%

22%

11% 0%

21%

55%

23% 1%

11%

10%

20%

53% 3% 3%

GEOGRAPHIC EXPOSURE

67

Hyatt Geographic Exposure by Rooms Pro Forma Geographic Exposure by Rooms

Hyatt Chain Scale Exposure by Rooms Pro Forma Chain Scale Exposure by Rooms

- Americas

- EMEA

- Other

- Asia/Pacific

- Upper Midscale

- Midscale

- Other

- Economy

- Upscale

- Upper Upscale

- Luxury

A combination with IHG would allow Hyatt a significant increase in exposure to Europe and the Upper Midscale segment


Uses of Funds Sources of Funds Unaffected Share Price(1) £22.26 2014E Adj. EBITDA $775 Share Price in USD(2) $37.47 IHG Adj. EBITDA 753








68

Hyatt could offer IHG a compelling valuation without incurring earnings dilution while maintaining an investment grade credit rating





Pro Forma 2015 Net Income $606






STRATEGIC RATIONALE

Accor has stated a desire to diversify geographically and could benefit from combining with IHG’s numerous hotels in the Americas, where the company has limited presence (8% of portfolio) Accor is not asset-light; however, a partnership could balance Accor’s more asset-heavy strategy IHG’s Upper Midscale offerings, namely Holiday Inn and Holiday Inn Express, would add chain scale diversity, as Accor is primarily focused in the Upscale and Midscale segments A partnership with IHG would provide Accor with an improved opportunity for expansion in China

69

AC 63%

IHG 37%


w/ 7.5%







~ ~ ~

Brand Portfolio


~

~


Source: Company publications; STR 2014 Chain Scales 70 = Significant Exposure ~ = Limited Exposure = No Exposure




8%

61%

24%

7%

43%

39%

15% 3%

6%

7%

38%

1%

31%

15% 2%

8% 3%

27%

39%

15% 6%

2%

71

Accor Geographic Exposure by Rooms Pro Forma Geographic Exposure by Rooms

Accor Chain Scale Exposure by Rooms Pro Forma Chain Scale Exposure by Rooms

- Americas

- EMEA

- Other

- Asia/Pacific

- Upper Midscale

- Midscale

- Other

- Economy

- Upscale

- Upper Upscale

- Luxury

A combination with IHG would allow Accor to enter the U.S. hospitality market while also gaining significant presence in the Upper Midscale segment





(+) Adj. Net Debt(3) 1,086 Current Net Debt 345 (-) 2H 2014E FCF (142) Incremental Debt $7,150





72

Accor could offer IHG a compelling valuation without incurring earnings dilution while maintaining an investment grade credit rating


Source: Bloomberg, company publications, Marcato estimates Note: Other than price per share, all numbers expressed in millions of USD; Accor financials converted from EUR to USD at 1.2832 rate (1) As of May 23, 2014 unaffected price per share, not adjusted for dividends (2) Share price in USD based on $1.6832 GBP/USD (3) Loans and other borrowings less cash and equivalents, less equity securities available-for-sale, less loans and receivables (4) Adj. EBITDA is pre-stock-based-compensation expense; IHG is also adjusted for announced asset disposals and liquidated damages (5) Assumes an incremental $13 million of D&A from step-up on depreciable and amortizable assets (6) Assumes growth rate in stock-based compensation of 9% and 7% in 2014E and 2015E respectively (7) Assumes 5.5% interest expense on incremental net debt (8) Assumes 32.5% effective tax rate



Pro Forma 2015 Net Income $870





VI. ADDITIONAL SUPPORTING DETAILS


POTENTIAL “TIER A” STRATEGIC PARTNERS

74

($ in millions) Market Cap

LTM Net Revenue

LTM Adj. EBITDA

2014E Adj. EBITDA

2015E Adj. EBITDA

EV/LTM Adj. EBITDA

EV/2014E Adj. EBITDA

EV/2015E Adj. EBITDA

2013 Effective Tax Rate(1)

Using May 23, 2014 price(2) $8,963 $1,875 $715 $753 $822 14.1x 13.3x 12.2x 29.4%

As of Sep. 19, 2014 9,524 1,875 715 753 822 14.8x 14.1x 12.9x 29.4%

As of Sep. 19, 2014 14,553 3,333 1,219 1,258 1,396 14.5x 14.0x 12.6x 31.8%

As of Sep. 19, 2014 21,226 2,590 1,397 1,466 1,655 17.5x 16.7x 14.8x 30.2%

As of Sep. 19, 2014 24,370 6,561 2,368 2,460 2,673 14.9x 14.4x 13.2x 34.1%

As of Sep. 19, 2014 10,190 5,159 1,216 1,293 1,382 10.8x 10.1x 9.5x 36.5%

As of Sep. 19, 2014 9,535 2,663 727 775 887 15.5x 14.5x 12.7x 36.2%

As of Sep. 19, 2014 10,930 6,959 1,118 1,224 1,352 10.4x 9.5x 8.6x 46.7%

Source: Bloomberg, Capital IQ, company publications, Marcato estimates Note: Adj. EBITDA is pre-stock-based-compensation expense; IHG is also adjusted for announced asset disposals and liquidated damages Note: Foreign exchange rate assumption for IHG on May 23, 2014 is GBP/USD at 1.6832, IHG on September 19, 2014 is GBP/USD at 1.6284, and Accor at EUR/USD at 1.2832 (1) Effective Tax Rate calculated by dividing 2013A income tax expense by 2013A Profit Before Tax, unless explicitly stated in the annual report (2) Based on May 23, 2014 unaffected share price, not adjusted for dividends

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Financial Metrics: Financial Metrics: Financial Metrics: Financial Metrics: Financial Metrics: Financial Metrics: Financial Metrics:RCF / Net Debt (1): 44.7% RCF / Net Debt (1): 15.7% RCF / Net Debt (1): 16.9% RCF / Net Debt (1): 22.0% RCF / Net Debt (1): 17.0% RCF / Net Debt (1): 15.5% RCF / Net Debt (1): 15.0%Net Debt / Adj. EBITDA: 1.8x Net Debt / Adj. EBITDA: 4.1x Net Debt / Adj. EBITDA: 3.6x Net Debt / Adj. EBITDA: 3.9x Net Debt / Adj. EBITDA: 3.6x Net Debt / Adj. EBITDA: 3.9x Net Debt / Adj. EBITDA: 5.4xEBIT / Interest: 8.7x EBIT / Interest: 5.1x EBIT / Interest: 4.8x EBIT / Interest: 3.1x EBIT / Interest: 4.6x EBIT / Interest: 3.6x EBIT / Interest: 3.1x

Grid Implied Ratings: A+ / A1 Grid Implied Ratings: BBB+ / Baa1 Grid Implied Ratings: A- / A3 Grid Implied Ratings: BBB+ / Baa1 Grid Implied Ratings: BBB+ / Baa1 Grid Implied Ratings: BBB / Baa2 Grid Implied Ratings: BBB- / Baa3

Actual Assigned Ratings BBB / NR

Comments: Comments: Comments: Comments: Comments: Comments: Comments:Notch Up:- An increase in RCF/Net Debt above 15% could help ratings notch upNotch Down:- Due to the cyclical nature of the business, disruptions in financial performance may affect credit metrics and lead to a possible notch down in ratings- If EBIT/Average Assets, which is close to the bottom of its ratings range, falls below 10%, ratings could be notched down

Positive Attributes:- Current ratings supported by the Company's expanding portfolio of well-recognized lodging brands- Fee-based, asset-light, franchised, and managed business model limits operating leverage and capital intensityNotching:- Company is notched lower than the Grid Implied Ratings due to its financial policy assessment- Company's focus on shareholder returns by means of dividends and share buybacks could increase leverage Downgrade Scenario:- Lower ratings if Company announced further material investments or shareholder returns without offsetting property disposals - If RCF / Net Debt approached 20% or debt to EBITDA increased towards 4.0x

Notch Up:- The increase in scale and number of rooms of the combined business are viewed positively by the ratings agencies- Company's geographical diversity is also a positive considerationNotch Down:- Due to the cyclical nature of the business, disruptions in financial performance may affect credit metrics and lead to a possible notch down in ratings- If RCF/Net Debt falls below 10%, ratings could be notched down - If Revenues, which sit close to the low end of the range, decrease below $5 billion on a combined basis, ratings could be notched down

Notch Up:- The increase in scale and number of rooms of the combined business are viewed positively by the ratings agencies- If Debt/EBITDA, which sits close to the lower end of its ratings range, is brought down below 3.5x, ratings may be notched upNotch Down:- Due to the cyclical nature of the business, disruptions in financial performance may affect credit metrics and lead to a possible notch down in ratings

Notch Up:- An increase in RCF/Net Debt above 25% could help ratings notch up- Company's large franchise/management business helps maintain financial flexibility and will be viewed positively by the ratings agenciesNotch Down:- Due to the cyclical nature of the business, disruptions in financial performance may affect credit metrics and lead to a possible notch down in ratings- If EBIT/Net Revenue, which sits at the low end of the range, falls below 20%, ratings could be notched down - If EBIT/Average Assets, which also fall close to the low end of the range, falls below 5%, ratings could be notched down

Notch Up:- The increase in scale and number of rooms of the combined business are viewed positively by the ratings agencies- If Debt/EBITDA, which sits close to the lower end of its ratings range, is brought down below 3.5x, ratings may be notched upNotch Down:- Due to the cyclical nature of the business, disruptions in financial performance may affect credit metrics and lead to a possible notch down in ratings- If EBIT/Net Revenue falls below 15%, ratings could be notched down

Notch Up:- An increase in RCF/Net Debt above 20% could help notch ratings upNotch Down:-Due to the cyclical nature of the business, disruptions in financial performance may affect credit metrics and lead to a possible notch down in ratings- An increase in debt may lead to ratings being notched down as EBIT/Interest sits at the low end of the range and may fall below 3.0x

Standalone Pro Forma Combined

InterContinental Hotels Group Starwood Hotels & Resorts Worldwide

Marriott International

Hilton Hotels & Resorts

Wyndham Worldwide Corporation

Hyatt Hotels Corporation

Accor S.A.(6)

Source: Company publications Note: Calculated per Moody’s methodology; all pro forma combined Net Debt/Adj. 2014E EBITDA values are driven off of an implied pro forma Net Debt/2014E Adj. EBITDA level of 3.5x with the exception of Hilton which assumes a 3.6x pro forma Adj. Net Debt/2014E Adj. EBITDA (1) Retained cash flow (RCF) is calculated using cash flows from operations less dividends

CREDIT RATING ANALYSIS

75

Based on our analysis, after review by Houlihan Lokey, even without synergies, partially debt-financed strategic combinations could potentially support favorable ratings and maintain healthy credit statistics


Source: Business Wire “Fitch: Window Closing for Attractive US Hotel Acquisition Opportunities”, September 3, 2014

CREDIT RATING ANALYSIS (CONT.)

76

“Lodging C-Corps continue to look for brand acquisitions, which could strengthen credit profiles if greater scale and cash flow diversification accrue.”

Fitch Ratings, September 3, 2014

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