Activist investor Marcato Capital Management LP said InterContinental Hotels Group Plc’s share price may double if the lodging operator agrees to a merger or acquisition by another hospitality company.

The hedge fund, owner of about 4 percent of InterContinental shares, hired investment bank Houlihan Lokey in August to help it conduct a strategic review of Europe’s second- largest publicly traded hotel operator. A combination would enhance InterContinental’s value by increasing opportunities for growth and generating “substantial business and financial synergies,” Marcato said today in a letter to investors.

InterContinental “will not be able to provide shareholder value comparable to what could be achieved through a combination with another major hotel operator,” Marcato said.

Richard Solomons, the hotel company’s chief executive officer, said in a June interview that InterContinental can grow without a merger or takeover and it has served investors well. The Denham, England-based hotel company is seeking to expand in the mid-priced category in the U.S. as well as in places such as China, Russia and India, and to increase awareness of the InterContinental name, Solomons said.

In a response to Marcato’s letter, InterContinental said that following a review of the firm’s analysis, the board “concluded that it remains in the best interests of all its shareholders to continue to pursue its current strategy for high-quality growth and delivering strong operational and financial performance.”

Shares Rise

The response was released after London stock markets closed. InterContinental today rose 3.4 percent to 2,537 pence, the highest since June 30.

Sky News reported on May 24 that InterContinental, owner of the Holiday Inn and Crowne Plaza brands, received a bid that valued the company at 6 billion pounds ($9.52 billion). The hotel operator rejected the offer, from a U.S. company, as too low, according to Sky News, which didn’t say where it got the information or identify the suitor.

Following the report, “we grew concerned that the board was not giving due consideration to the strategic alternatives available in the current industry and M&A environment,” San Francisco-based Marcato said in today’s letter.

To contact the reporter on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net. To contact the editors responsible for this story: Kara Wetzel at kwetzel@bloomberg.net.

Photo Credit: The new branding of InterContinental Hotel Group's Holiday Inn brand. VisMedia