By Greg Roumeliotis, Arathy S Nair and Arunima Banerjee
(Reuters) - Hyatt Hotels Corp (N:H) is in talks to buy U.S. hotel operator Starwood Hotels and Resorts Worldwide Inc (N:HOT) in a cash and stock deal, a source familiar with the matter said.
Hyatt's management would retain control of the combined company and a deal could be announced in the coming weeks, the source told Reuters.
Starwood is valued at about $12.75 billion (8 billion pounds) while Hyatt has a valuation of about $7.23 billion. Both the companies declined to comment.
China's sovereign wealth fund and two big Chinese companies had expressed interest in Starwood Hotels, joining other suitors from around the world, a source familiar with the matter told Reuters on Tuesday.
"My hunch is they (Hyatt) would be able to (buy Starwood). They could pull it off but it would be a stretch," Argus Research Co analyst John Staszak said.
Staszak said a foreign acquirer might be ideal as it would be willing to pay a premium price.
Starwood had reached out to potential bidders including InterContinental Hotels Group Plc (L:IHG), Wyndham Worldwide Corp (N:WYN) and sovereign wealth funds in July, three months after it decided to explore a sale, sources told Reuters.
According to Nomura Securities analyst Harry Curtis, Starwood could be bought at over $100 per share, which would value the company at more than $17 billion.
"Assets like HOT (Starwood) do not come up for sale often, so it is unrealistic to believe that a suitor could buy the company close to its current tag sale valuation," Curtis wrote in a note.
Interval Leisure Group (O:IILG) said on Wednesday it would buy Starwood Hotels' vacation ownership business, which it valued at about $1.5 billion.
Starwood, which owns the St. Regis and Sheraton hotel brands, also on Wednesday reported a better-than-expected third-quarter profit, driven by higher occupancy rates.
Rival Hilton Worldwide Holdings Inc (N:HLT) reported a higher third-quarter profit, helped by a rise in occupancy and room rates.CNBC reported earlier on Wednesday that Hyatt is in talks to buy Starwood Hotels (http://cnb.cx/1Re6m7Z)
Shares of Hyatt were marginally up at $50.72 while Starwood was up 5.7 percent at $79.12 in late-morning trading on Wednesday.