US hoteliers Marriott International and Starwood Hotels have agreed a $12.2bn (£8bn) deal to create the world’s biggest hotel company.
Marriott International (MAR) has agreed to buy Starwood Hotels and Resorts in a $12.2 billion deal that will make it the largest hotel chain in the world.
The boards of directors of both companies have unanimously approved a merger agreement, Marriott announced this morning. The combined companies will operate or franchise more than 5,500 hotels with 1.1 million rooms worldwide. About 35% of the properties are outside the USA.
Shares of Marriott rose 2% to $74.21 in morning trading and Starwood fell 3.5% to $72.34.
Marriott CEO Arne Sorenson will remain CEO of the combined company. The company’s headquarters will remain in Bethesda, Md. The companies expect the deal to close in mid-2016, following shareholder and regulatory approvals.
Starwood indicated in April that it was seeking to reorganize or sell. Long-time CEOFrits van Paasschen resigned earlier this year.
In an interview this morning, Sorenson said Starwood appealed to Marriott because of its portfolio of 11 brands, many of them lifestyle hotels that tend to attract younger travelers. Marriott has aggressively tried to target that consumer group with the introduction of such brands as AC hotels and Moxy.
Starwood also brings with it a strong international presence that Sorenson says will help Marriott increase its global footprint.
“We really like the global platform that Starwood has. We think this is a global industry,” he says. “We have really powerful global travel trends, whether you think of the new group of Chinese traveling abroad or Indians traveling abroad or people wanting to get around and see the world. We think it’s good to accelerate our global distribution that way.”
The move was also a smart play at a time of myriad mergers within the on-line travel booking space.
“The online travel reservations operators have been consolidating as well,” said Scott Kim, research director for Kellner Capital. “So as online travel aggregators get larger, I think the suppliers, which are namely the hotel operators and reservation systems, really have to try and get larger as well to keep some balance of power in negotiations. So it’s really consolidation along the whole supply chain.”
Expedia, the number one digital travel provider, announced earlier this month that it would buy vacation rental site HomeAway for $3.9 billion, and purchased Orbitz Worldwide earlier this year for roughly $1.6 billion. Its rival Priceline bought Kayak in 2012, and has veered beyond the travel space by acquiring restaurant reservations site OpenTable for $2.6 billion in June, 2014.
The Stamford-Conn.-based Starwood had suffered in recent years because it had not grown its brands in North America as quickly as its competitors.
“The combination of our two companies brings together the best in innovation, culture and execution,” Starwood interim CEO Adam Aron said in a written statement. “Our guests and customers will benefit from so many more options across 30 hotel brands, while our hotel owners and franchisees will derive value from our combined global platform and efficiencies.”
Starwood has 11 brands, including W Hotels, St. Regis, Westin, and Aloft. The company had been making itself more attractive to a buyer by creating two new brands this year. The Tribute Portfolio is a collection of four-and five-star independent hotels. Last week, the company expanded a partnership with Design Hotels to bring the Germany-based company into the Starwood portfolio. The company had been in talks with Chinese companies as well as Chicago-based Hyatt Hotels and Resorts over a possible sale.
Starwood’s brands will join Marriott’s 19, which include The Ritz-Carlton, Residence Inn, and Courtyard.
Sorenson says there are no plans to get rid of any of the brands, even though some like Marriott’s Renaissance hotels and Starwood’s Le Meridien serve similar audiences.
“The philosophy is to keep the brands,” he says. “Remember these brands are all competing in the marketplace today. This is not a case where someone is thinking of creating 10 new brands … There may be some places where there will be tweaking or some nipping and tucking but by and large we think these brands can compete well and they belong together.”
In some cases, Starwood is already working on revamping some of its brands, in particular Sheraton Hotels.
“I think the quality of the brand portfolio that Starwood has is quite strong. Does that mean it’s perfect? Of course not,” he says. “They have already identified things they need to do with, for example, the Sheraton brand, and by and large we think those are good steps, and if anything we will try to accelerate and intensify them to make the brand even stronger.”
Other hotel chains may need to consider following Marriott’s and Starwood’s lead.
“Hilton has such a diverse portfolio of product they don’t need to do an acquisition,” says Kim of Kellner Capital. “But could they? Potentially. . . Choice Hotels or Extended Stay or even Hyatt, those in the mid level, $5 to $10 billion dollar valuations, those companies may need to do acquisitions or even be sold to a larger (company) to increase their inventory of hotels. to either gain leverage during negotiations with the online travel players or offer more on their (own) websites.”
The Marriott Rewards program has 54 million members while Starwood Preferred Guest has 21 million.
It will take some time for Marriott to decide whether or not to merge the programs, Sorenson says. But he says consumers should not be worried about losing their points in either program.
Sorenson says that in general, the merger will not impact the guest stay in the near future.
“I think for now, (it’s) business as usual,” he says. “Our hotels will continue to be operated by the Marriott teams and Starwood teams with the people that are in place.”
Under the terms of the agreement, Starwood shareholders will get 0.92 shares of Marriott and $2 in cash for each share of Starwood common stock. Separately, they will also get $7.80 per Starwood share upon completion of a spin-off of the company’s timeshare business to Interval Leisure Group. That is supposed to be completed prior to the Marriott-Starwood merger.
The transaction has a value of $72.08 per Starwood share, including the $2 cash per share.
Starwood shareholders will own approximately 37% of the combined company.
Top Starwood hotel brands
• Four Points by Sheraton
• Sheraton Hotels & Resorts
• W Hotels
• Le Meridien
• Westin Hotels & Resorts
• St. Regis® Hotels & Resorts
Top Marriott hotel brands
• The Ritz-Carlton
• JW Marriott
• Renaissance Hotels
• Marriott Hotels & Resorts
• Delta Hotels
• Residence Inn
• SpringHill Suites
• Fairfield Inn
• TownePlace Suites by Marriott