Saudi Prince Alwaleed bin Talal and Colony Capital will pay $3.9 billion to buy Fairmont Hotels & Resorts Inc. (FHR), the hotelier said Monday, trumping an offer by billionaire investor Carl Icahn who put the company in play with a partial bid last year.

The joint offer by Prince Alwaleed's Kingdom Hotels International and investment group Colony would combine the Fairmont name with the Raffles hotel group.

"We're happy that value for all shareholders is enhanced through this offer," said Icahn in an interview.

Icahn, whose offer was rejected by the Fairmont board in December, declined further comment.

Kingdom Hotels already owns just above 5 percent of Fairmont while Icahn had accumulated a 9.3 percent stake.

The offer from Kingdom and Colony — which trumped Fairmont last year in a bid for the Raffles group — reflects growing interest in the lucrative luxury lodgings market.

Earlier this month, both Starwood Capital Group and Hilton Hotels Corp (HLT) aunched new luxury hotel brands.

Fairmont, which is based in Toronto and owns more than 80 hotels in North America, Britain, Kenya and the United Arab Emirates, said it agreed to the deal under which the two investment groups will pay it $45 per share in cash.

That's a slight premium to Fairmont's closing price on Friday of $43.82 on the New York Stock Exchange, and a hefty 28-percent premium to the stock's price in early November when the company was offered the buyout by Icahn.

Icahn eventually offered $40 a share, or $1.19 billion, to buy 51 percent of the hotel chain's shares but was rejected by the board in December.

Under the terms of the deal, the $45-a-share offer values the deal at $3.2 billion. Including debt and the Raffles combination, the value is $3.9 billion.

"The price is quite rich," said analyst Jacques Kavafian at Research Capital in Toronto. "This is an all-cash offer, 100 percent of the stock, very few conditions and then the board has unanimously approved it.

"So for Carl Icahn to come in and have a fight may not be wise. We're not expecting it."

The deal will see Fairmont's hotels combined with the Raffles group, including 23 Swissotels, to create an international luxury chain with 120 hotels in 24 countries.

Billionaire Prince Alwaleed, a prominent global investor with a large stake in Citigroup Inc. , is a nephew of Saudi Arabia's King Abdullah.

Fairmont said the deal, which is backed by the company's board, is expected to close in the second quarter of 2006.

Last year, Colony Capital bought the hotel business of Raffles Holdings for $859 million, gaining Singapore's landmark Raffles Hotel, several historic hotels in Asia, including the Raffles Grand Hotel d'Angkor in Siem Reap, Cambodia, and the Swissotel brand.

Colony's assets include a baseball stadium in Japan, a French steakhouse chain, as well as European budget hotels and casinos in Las Vegas. Past investments include London's Savoy Group, New York's Stanhope Hotel and the Aman resorts hotel chain in the U.S. and Asia.

Alwaleed's hotel-related investments include theFour Seasons Hotels and Resorts, the George V Hotel and Movenpick Hotels & Resorts.

"This acquisition will expand our global presence in the hotels and resorts sector," Alwaleed said in a statement.

Fairmont is one of five firms spun off by conglomerate Canadian Pacific Ltd. in 2001.

Most other former CP businesses have been restructured or sold. PanCanadian Energy merged with Alberta Energy to form EnCana Corp. , Fording Coal was converted into Fording Canadian Coal Trust and CP Ships was taken over by Germany's TUI .

Canadian Pacific Railway, the country's No. 2 railroad, remains independent.