Hyatt Hotels Corp is in talks to buy US hotel operator Starwood Hotels and Resorts Worldwide 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 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, Wyndham Worldwide Corp 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 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 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.
 
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.-Reuters