Hotels group IHG urged by Marcato Capital to look at merging

(Adds background, shares)

By Neil Maidment

LONDON, May 29 (Reuters) - A shareholder in Intercontinental Hotels Group urged the hotelier on Thursday to consider a tie-up with a rival, following media reports that it recently rebuffed a mystery 6 billion-pound ($10 billion) U.S. takeover offer.

Activist investor Marcato Capital Management, which owns 3.8 percent of IHG, said in a statement the prospect of a merger with a larger hotel operator would have "compelling strategic and financial merit" and would reshape the hospitality industry.

"We strongly encourage Intercontinental Hotels Group's board of directors to explore such a combination and engage advisors to conduct a formal process to ensure it evaluates the full range of opportunities available to maximize value," Mick McGuire, hedge fund manager at Marcato, said.

Last week British media reports said that IHG, which runs 4,700 hotels under brands including Crowne Plaza, Holiday Inn and InterContinental, met some weeks ago to consider a 6 billion-pound offer but had rejected it on the grounds it was too low.

The company has so far declined to comment.

Analysts have suggested that Starwood Hotels & Resorts Worldwide Inc, owner of the Sheraton and Westin brands, could be the U.S. suitor.

However, many analysts have said also pointed out that since the reported approach occurred IHG has repurchased shares on several occasions, suggesting it cannot be in any active bid talks.

The firm has also since announced in early May it would return $750 million to shareholders and was considering selling off more hotels to boost further cash returns, bolstering its share price and reducing the bid premium.

Shares in IHG were up 1 percent at 2,327 pence at 1400 GMT, around 28 percent higher than a year ago and valuing the business at around 6 billion pounds.

Marcato has recently been involved in activist tussles with the likes of auction house Sotheby's, where it has urged the company to return more cash to shareholders and cut costs, and car parts maker Lear Corp (NYSE: LEA - news) . ($1=0.5986 British Pounds) (Additional reporting by Li-mei Hoang; Editing by William Hardy and Greg Mahlich)