Starwood Hotel and Resorts Worldwide Inc. (NYSE:HOT), the owner of the Sheraton hotel chain, has filed a NIS 126 million ($35 million) lawsuit with the Tel Aviv District Court against Azorim Investment, Development and Construction Ltd. (TASE: AZRM). Starwood is demanding compensation from three Azorim subsidiaries for breach of contract over the transfer of management of Sheraton hotels in Israel to it.
Starwood says that Azorim's excuse for the breach of contract was a threat by Bank Hapoalim (TASE: POLI; LSE:80OA) to call in loans to Azorim. Starwood says that it found out that "the bank's extreme caution in its relations with Azorim was due to Azorim's financial situation, which caused the bank great concern about the company's ability to repay its debts to the bank."
Starwood claims that it signed an agreement with Azorim and third parties under which Azorim bought Starwood's full holdings in Sheraton Moriah Hotels & Resorts Israel Ltd. (now Azorim Moriah Israel Ltd.), which owns a number of hotels, as well as the stakes of Koor Industries Ltd. (TASE:KOR) and Bank Hapoalim.
Starwood adds that, in July 2007, Azorim undertook to transfer management of the hotels to it under a contract of up to 35 years in exchange for stipulated management fees. The hotels in question are Sheraton Moriah in Tel Aviv, Eilat and Tiberias, the Sheraton Plaza in Jerusalem, Moriah Classic Dead Sea, and Moriah Kedem Jerusalem, all fully owned by Azorim Moriah Israel; and two partly-owned hotels, the Sheraton City Tower in Ramat Gan, and the Herod's in Eilat
However, close to the date of transfer of management, Azorim notified Starwood that Bank Hapoalim claimed that the transfer of management contravened its loan agreement with Azorim. Starwood says that in its contract with Azorim, Azorim declared that its commitments did not contravene commitments towards any third party.
Starwood has asked the court to enforce the contract or order Azorim to pay compensation.
Azorim has not yet filed a statement of defense.
Published by Globes [online], Israel business news - www.globes-online.com - on February 7, 2008
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