Greetings, and welcome to the Marriott Vacations Worldwide to acquire ILG Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I'd now like to turn the conference over to Jeff Hansen, Vice President of Investor Relations.
Please go ahead, Jeff.
Thank you, Rob. Welcome, everyone, and thank you for joining us. Earlier this morning, we issued a press release and filed a slide presentation which we will be walking you through this morning, both of which are available on Chairman, President and Chief Executive Officer of Financial and Administrative Officer for Marriott Vacations Worldwide, who will be joining for Q And A. I do need to remind everyone that many of our comments today are not facts and are considered forward looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our SEC filings, which could cause future results to differ materially from those expressed in or implied by our common Forward looking statements in the press release that we issued this morning, along with our comments on this call, are effective only to April 30, 2018, call, we will make references to non GAAP financial information.
You can find a reconciliation of non GAAP financial measures referred to in our remarks and the schedules attached to our press release, as well as the Investor Relations page on our website at ir. Mvwc dotcom. With that,
I will turn the call over to Steve Weisz, President and CEO of Marriott vacations worldwide. Thanks, Jeff, and good morning, everyone. This is an exciting day for both Marriott Vacations Worldwide and ILG. Through this acquisition, which has an equity value of approximately scale vacation ownership, exchange networks, and management services. We will be bringing together 2 of the premier global companies and 7 vacation ownership brands to create a more diversified company with significantly enhanced marketing potential and scale to drive long term access for vacation ownership to over 100,000,000 members in the Marriott rewards, Starwood Preferred Gift, and Ritz Carlton rewards loyalty programs, for our 6 Marriott Vacation Ownership brands.
This potential and scale to drive sales growth and value for both MVW and ILG shareholders. Through IOG's relationship with Hyatt, we will also have the rights to develop, market and sell into the Hyatt Vacation Ownership programs, including access to the almost 10,000,000 members of the World of Hyatt Loyalty Platform. ILG's Exchange Networks And Management Services businesses businesses, in particular, its leading exchange business, Interval International, will also provide MVW with per metal, stable, high margin revenue streams, which would diversify our financial profile and enhance profitability. As we will discuss in more detail shortly, this is a financially compelling transaction that will result in a strong the to be accretive to NVW's adjusted EPS within the first full year after close and to quickly generate cost synergies are expected to grow to at least $75,000,000 within 2 years following the close. Now on to the terms of the transactions.
And as illustrated on slide 4, under the terms of the agreement, ILG shareholders will receive $14.75 in cash and 0.165 shares of MVW common stock for each ILG share. Following the close, ILG shareholders will own approximately 43 percent of MVW common shares on a fully diluted basis based on the number of MVW common shares of standing today. Following the close of the transaction, I will continue to serve as President and CEO of MVW, and John Geller, our Chief Financial And Administrative Officer, will continue in his role. Our board will expand from 8 to 10 members to include 2 current members of the ILG Board and Bill Shaw will remain in his role as Chairman. We will also continue to be headquartered in Orlando and will maintain a significant operating presence in Miami, including the headquarters of interval international ILG's leading exchange business.
As I mentioned, the financial benefits of this transaction are compelling. We expect the transaction will be approximately $75,000,000 in annual run rate cost savings within 2 years, assuming one time expenses of approximately $170,000,000. We plan to pay an annual dividend of $1.60 per share following the close. The transaction, which we expect to close in the second half 2018 is subject to regulatory approvals and approval by the shareholders of both companies. Qray Retail Incorporated has entered into a voting agreement with ILG in support of the transaction.
Now, I'd like to turn the call over to Craig to provide some details on
transaction. We are pleased and as owners of 43 percent of the combined company on a go forward basis, will also participate in the long term growth potential of this unparalleled vacation experience company. Additionally, with ILG adding 2 directors to the board of the combined entity, our shareholders will the value proposition from this combination in enhanced the experiences and services we can provide around the world, while ensuring we can deliver the customer service and attention they have come to expect from us. I would like to take this opportunity to publicly thank our more than 10 1000 associates around the world for their dedication and commitment It is because of their hard work that since the spin off from IEC in 2008, ILG has established a track record of successfully adapting to changing industry dynamics and creating shareholder value. This combination is the logical next step in this evolution.
Interval International has provided vacation services to Marriott Vacations for nearly 30 years and our 2 companies have enjoyed a close relationship and a shared commitment to quality and exemplary customer service. I believe we share similar values and goals of those of Steve and his team. Our associates like the Marriott Vacations team are committed to delivering unforgettable vacation experiences and the highest levels of service. By joining forces, we will create a leading vacation ownership and exchange company with greater geographic reach, a broader network of Upper upscale Resorts and complimentary product portfolios to create even greater experiences for our members and owners. With that, I'll turn the call back
confidence you have placed in us to lead the combined company going forward. Turning to Slide 5, we're excited to create a more diversified company with an expanded portfolio of highly demanded vacation destinations. Together with ILG, we remain committed further improving our offerings to our respective owners, members and guests with enhanced vacation experiences throughout the world. As many of you know, ILG is a leading provider of premier vacation experiences with over 40 properties and more than 250,000 owners in their Vistana signature experiences and Hyatt vacation ownership portfolios. ILG is also our long standing exchange partner with nearly 2,000,000 members and over 3200 Resorts worldwide.
With ILG, we will have an enhanced portfolio of complimentary properties and brands with approximately 650,000 and over 100 vacation properties around the world and has the global licensee to 7 upper upscale and luxury vacation brands. We will bring together 6 world class brands under one licensing relationship with Marriott International, which will enable us to benefit from high value marketing sales channels, including those provided by Marriott International's platforms to drive sales growth and value for both NVW and ILG Through these arrangements, the combined company will have exclusive rights for vacation ownership to the Marriott rewards Starwood Preferred Guest and Ritz Carlton rewards loyalty programs. We also expect to leverage the exclusive call transfer and hotel linkage rights we gain our amended agreement with Marriott International to drive sales growth across both MVW and ILG Marriott branded properties. With respect to ILG Hyatt business, the combined company will have the rights to develop, market and sell under the Hyatt Vacation Ownership Programs, including access to almost 10,000,000 members of the World Hyatt Loyalty Program. On Slide 6, you can see the scope of brands that this transaction will bring together expanding our vacation ownership business, exchange, rental and management services businesses.
As I mentioned, Together, we will be the global licensee of 7 upper upscale and luxury vacation litter brands, including Marriott Vacation Club, Grand Residences by Marriott, Carlton Destination Club, Sheraton Vacation Club, Weston Vacation Club, St. Regis Residence Club, and Hyatt Residence Club. Premier exchange networks include interval International, the Stana Signature Network, Hyatt Residence Club, and trading places international and resort management businesses include VRI Businesses And Aqua Aston Hospitality. In addition, ILG's resort management properties across the U. S, Caribbean, Mexico and Europe were significantly to provide a better Turning to Slide 7, the new revenue streams that we will gain through ILG will significantly diversify our revenue profile and enhance our margins.
ILGs Exchange Networks And Management Services business create ample opportunity to realize recurring high margin fee based revenue streams. Additionally, the transaction brings together Marriott Vacation Club, the Santa Signature Network And Hyatt Residence Club, whose owners on a combined basis represent approximately 50% of the corporate members of Integral International. Combining these brands under common ownership will provide revenue streams, the combined company in 2017 would have had a combined revenues of $2,900,000,000 and adjusted EBITDA of $737,000,000. The stronger financial and cash flow profile we will have following this transaction will enable us to maintain flexibility On Slide 8, you can see that this transaction will considerably expand our reach through ILG's exchange networks, complemented by access over 3200 Resorts and nearly 2,000,000 members. Additionally, on a combined basis, we will significantly increase our revenue and EBITDA generation abilities.
As I noted earlier, we expect we will be able to achieve strong revenue growth through our ability to leverage enhanced marketing platforms across both from an expanded portfolio, we will gain properties in areas that our guests and owners want to be. With 4 vacation ownership resorts in and one on St. John, MVW will have an important foothold in popular vacation destinations in Mexico and an expanded presence in the Caribbean. The addition of Hyatt vacation ownership also offers new destinations that will enhance our portfolio with the combined portfolio of high quality properties and premier exchange networks, we are well positioned to enhance our offerings, drive revenue growth, and serve our owners and guests even better in the future. Moving along to Slide 10.
Over the past several months, we've been asked numerous questions regarding what synergies look like in this industry and more specifically, what synergies might exist of our until you have an opportunity to truly understand the nuances of any combination. Now that we have had an opportunity to spend some time to get underneath the potential that we can create, I'm very pleased with what savings identified through the combination of certain marketing and sales functions as well as general public cost savings, we anticipate at least $75,000,000 of annual run rate cost savings for the 2nd year of integration. While we are pleased with those cost savings, opportunities. What we are most excited about are the clear and actionable opportunities we see to drive top line growth. We see potential growth from the enhanced marketing capabilities across the expanded portfolio and owner and guest network that we will have post closing.
Plans for the combination of MBW and ILG upon closing are already being developed to ensure that we achieve the full potential of this TRANZACT and financial terms of this transaction are structured to result in a strong balance sheet to support long term growth and shareholder returns. We'll have a more diversified business model with strong, stable cash flows and a pro form a enterprise value of over $7,000,000,000. Additionally, we will us. Along with flexibility to continue pursuing growth opportunities while supporting As we turn to our final slide, let me sum up with what we think you should take away from this morning's announcement. Once again, I'm 1 say how very excited we are about this transaction, which will create a leading upper upscale vacation ownership provider in the industry.
Combining our 2 great companies will enable us to leverage our enhanced marketing platform across our broader portfolio and significantly larger owner network, to drive sales growth and expanded margins. Additionally, ILGs Exchange Networks And Management Services business provide a profitable revenue stream to for a scale, scope and capabilities to drive enhanced shareholder value and fulfill the dreams of owners and guests around the world by providing them with vacation memories that will last a lifetime. Thank
Our first question from the line of Ian Safino with Oppenheimer. Please proceed with your questions.
Good morning,
Ian. Hi. How are you? Congratulations on the deal I guess the question would be as far as, your view of anti trust here? I know you're really smaller than Wyndham is, but just kind of your sense and how kind of the administration is looking at that now?
Well, we've been, as you might imagine, we've been very well advised by outside parties on this issue and it's been studied very closely. And we are very confident that the deal will close before the end of the year.
Okay. And then just to follow-up $75,000,000. I mean, when you look at that, is that sort of a very base case synergy target or do you think that's kind of in the middle of the road? Because again, I would think that would be a little bit higher, but, kind of want to get your sense there. Thanks.
Well, as you may recall in my prepared remarks, I said it's the minimum of $75,000,000. So certainly, we will continue to to work to generate as many synergies as possible. But having said all that, I mean, the purpose of this acquisition is not about cost cutting. It's about really about the growth potential of this new combined entity and what we believe it brings forth for our shareholders our owners and our members.
The next question comes from the line of Patrick Schultz with SunTrust.
Hi Patrick.
Good morning. Good morning. Congratulations, everyone.
Thank you.
Thanks. A number of questions here. First, for you, Craig. Obviously, this deal seems logical, but were there any other potential buyers in consideration here?
Our strategic review committee reviewed potential strategic opportunities and engaged in discussions with multiple parties, with the advice of our skilled advisors and the board determined that this transaction is a great outcome for our shareholders.
Okay. Craig, are you planning to be on the board of VAC?
Right now my focus is to execute on the business make sure that we achieve our results and work with the Marriott Vacations Worldwide team in the transition.
Okay. My next question for questions are for Steve. A little bit more color on the synergies, can you be a little more specific on what are those operational redundancy as you mentioned?
Ones, public company costs, etcetera. We believe that there are synergies to be gained in the sales and marketing area, as well as some other administrative functions that support the business. And again, we spent a fair amount of time here in the due diligence period to try to identify them, but we'll continue to try to flush as well as we move ahead.
Okay. Two more questions. Steve, net debt going up to close to three times right now. What would just be your longer term target after the deal is completed and any rough timeframe to get there.
Good morning, Patrick. It's John. Yes, good morning. We're looking at a longer debt to probably in that 2 ish 2.5. I think, based on how we're looking at this thing, we think we can get down to that within, call it, 18 to 24 months post close given the strong cash flow generation of both entities.
Obviously, we're going to continue to work with our rating agencies. Our goal, as I've always said, is to get the right amount of leverage on there to stay in the that BB range, which I think is important for us. The nice thing about this transaction, which Steve hit on is when you think about our revenue streams, it really diversifies those more favorably in terms of I think how the rating agencies are going to look at our cash flows. Obviously, they've got all the change in management businesses that are recurring, high margin, low capital intensity. So that's all very positive in terms of how we think about our debt capacity going forward.
But we do want to get it down a little bit, which will give us more opportunities in the future for strategic acquisitions and things like that.
Okay. Just to be clear, that the rating agencies would, I guess, look a bit more favorably on the fee businesses as far as you, keeping at your target debt rating. Is that correct?
Yes, that's our expectations. We've had some very preliminary discussions with the agencies. Obviously, you got to sit down with them and and go through all the plans in more detail here following the announcement, but initial reaction was somewhat favorable with the the change in the mix.
Okay. And last question here. Any, this is for Steve and John. Any of the businesses that you're acquiring from interval, any thoughts on potential divestitures down the road?
I certainly have no plans to do so. We're very excited about the portfolio of of businesses that ILG has. We believe it's a great complement to what we have today, and we think it's going to be a wonderful combination going forward.
Okay. I'm sorry. I do have one last question here. With the various contract changes that you talked about on the most recent earnings call with, Marriott. Did that have any consideration or contemplation on doing this deal?
And I'm talking about the loyalty programs.
Well, I'll speak from our perspective and I'd like Craig to jump in as well. Clearly, we're very excited about the way on which are the amendments to our license agreement, came to be and we think that it provides a lot more flexibility and opportunities in terms of trying to drive top line growth. So from our perspective, it's a significant positive, not only for the existing business, but for the combined entity. Craig, do you have any idea?
No, in my from our perspective, the combination creates, greater scale, leading integrated vacation experience in experience company. It's a broader network of upper upscale Resorts and complimentary product portfolios that you mentioned. So, any, any advantages, obviously, the combination on the rewards program is upside.
Okay. And just to be clear, Marriott doesn't have to sign off on this, there's they're not involved in this at this point, correct?
Marriott has provided consent to the, to this transaction, for the assignment of the license agreement the Vistana Signature experiences portfolio to this transaction.
Okay. Thank you. That's all, congratulations everyone.
The next question is from the line of Jake Hune with Stifel. Please proceed with your question. Hi,
good morning.
Just wanted to ask, do you expect that the ILG bonds will be taken out as part of the action?
Our expectation is know that they'll stay in place at this point.
Okay, great. Thank you. And I also wanted to ask, can you provide any additional detail about how the cash portion of the consideration will be financed?
In terms of the overall financing package, we we already have a $2,500,000,000 committed bridge. Obviously, that's it's not our expectation to finance the deal that way. We would go out before closing and we expect it to be a mix of obviously cash on hand that both companies will have and a mix of term loan B and senior unsecured high yield debt, all to be kind of worked out here in terms of the mix of that. But in will also increase our corporate revolver, probably close to $500,000,000 to give us ability beyond that post closing.
At this time, I will turn the floor back Steve Weisz for closing remarks.
Thank you very much, Rob, and thank you all for joining us today. As we discussed, this is an exciting value enhancing in transaction that will benefit the shareholders of both companies, as well as our owners, business partners and employees. We hope you were as excited about, as we are about this compelling combination, and thank you for your interest and enjoy your next vacation.
This concludes today's conference. You may disconnect your lines this time. Thank you for your participation.