Marriott acquiring Starwood for $12.2 billion

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Marriott International on Monday morning agreed to acquire Starwood Hotels & Resorts for $12.2 billion, creating the world’s largest hotelier as well as the largest U.S. hotel operator by room count and revenue, by far.

With the acquisition, Marriott will lengthen its lead over Hilton Worldwide as the largest publicly traded U.S. hotel company by revenue and will leapfrog Hilton and InterContinental Hotels Group in hotel and room count.

Combined, Marriott and Starwood total more than 5,500 hotels with more than 1.1 million rooms. Together, the companies generated $15.1 billion in revenue through Sept. 30. Hilton, which has more than 4,500 hotels totaling more than 745,000 rooms, generated $8.42 billion for the first three quarters of the year. IHG as of Sept. 30 had 4,900 hotels totaling 727,000 rooms.

Marriott will benefit by gaining a larger presence in the lifestyle-brand sector and better exposure to younger hotel guests via the acquisition of the W, Westin and Aloft brands.

Starwood gets a broader exposure in the upper-upscale and select-service sectors though the Marriott, Renaissance, Courtyard, Residence Inn and Fairfield Inn brands, executives with both hotels said on a conference call with analysts Monday morning.

Marriott said it would realize $200 million in annual cost savings within the second full year after the transaction is completed, primarily though general and administrative cost savings.

“Marriott will have a broader portfolio, provide better service and provide a deeper relationship with our guests,” Marriott CEO Arne Sorenson said on Monday’s conference call. “We expect Starwood’s brands to remain in place. We expect to meaningfully accelerate Starwood’s brands.”

“We realized that there’s opportunity for greater growth as part of larger organization, especially in the upper-upscale and midscale segments,” said Starwood Chairman Bruce Duncan, adding that the agreement represented “an outcome with the highest value proposition and the best possible one for Starwood shareholders.”

“We’re accelerating Starwood’s trajectory as part of a best-in-class company,” added Starwood CEO Adam Aron. “We are thrilled about this transaction.”

With the acquisition, Marriott will increase its brand count to 30 from 19, compared to 12 brands under Hyatt Hotels and 10 brands each for Hilton and IHG.

While both companies’ executives said all brands would be retained, the acquisition appears to create the greatest potential for brand cannibalization in the upper-upscale segment, where the Marriott, Renaissance and Autograph Collection brands compete against Sheraton, Westin, Le Meridien and Tribute Portfolio.

With Starwood this spring unveiling plans to expand the global footprint of its flagship Sheraton brand by about one-third with the addition of 150 hotels by 2020, Sorenson noted the “need to think about the [Sheraton] challenges as a little more in the U.S. than abroad.”

“Westin is a strong brand and a smaller brand than Marriott or Sheraton, and will continue to grow in the space that it’s in,” Sorenson added. “Beyond that, you’d get to Le Meridien and Renaissance. Those brands are competing in a fairly near space, so we’d want to see what the right approach would be, and we don’t really have the answers to that.”

The acquisition announcement takes place about seven months after Starwood said it would seek strategic alternatives and about nine months after former Starwood CEO Frits van Paasschen stepped down because of pressure from a company board that was seeking acceleration in hotel-count growth.

The transaction also takes place almost three weeks after reports surfaced that Hyatt was in talks to buy Starwood. Sorenson, on Monday morning’s call, said the “final strokes” of the agreement “came together very, very quickly.”

Marriott will pay $72.80 a share for Starwood plus $7.80 per share of Starwood’s Vistana timeshare division that Starwood has already announced it will sell to Interval Leisure Group. That transaction is slated to be completed before Marriot’s acquisition of Starwood.

The acquisition price is 3% less than Starwood’s closing price Friday and 6.2% more than on Oct. 26, the last trading day reports surfaced that Hyatt was in talks to buy Starwood. Of the $12.2 billion in the transaction, $11.9 billion will be in Marriott stock. Marriott shares initially fell about 1.5% in Monday morning trading but advanced about 1.5% after the conclusion of the conference call.

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