Marriott to buy Starwood Hotels & Resorts

Resulting entity will be world's biggest hospitality enterprise 

The boards of directors for Marriott International, Inc. and Starwood Hotels & Resorts Worldwide, Inc. have unanimously approved a $12bn merger agreement under which the companies will create the world’s largest hotel company.

The transaction combines Starwood’s (NYSE: HOT) leading lifestyle brands and international footprint with Marriott’s (NASDAQ: MAR) strong presence in the luxury and select-service tiers, as well as the convention and resort segment, creating a more comprehensive portfolio, the companies said in a news release announcing the agreement.

“This is an opportunity to create value by combining the distribution and strengths of Marriott and Starwood, enhancing our competitiveness in a quickly evolving marketplace,” Arne Sorenson, President and CEO of Marriott International said in a prepared statement. “This greater scale should offer a wider choice of brands to consumers, improve economics to owners and franchisees, increase unit growth and enhance long-term value to shareholders.”

The combined company will be called Marriott International after the transaction closes, a company spokesperson told TheTravelPro in an email. The transaction is expected to close in mid-2016 and is subject to the approval of both companies’ shareholders, completion of Starwood’s planned disposition of its timeshare business, regulatory approvals and the satisfaction of other customary closing conditions, the companies noted.

At present, Marriott has approximately 75 percent of the rooms in the United States spread across brands that include Marriott Hotels, J.W. Marriott, Ritz Carlton, Renaissance Hotels, Delta Hotels, Gaylord Hotels, Courtyard, Resident Inn, Springhill Suites, Fairfield Inns & Suites and TownePlace Suites.

Starwood derives nearly 67 percent of its revenue from properties outside the U.S., CNBC reported. Those properties include Sheraton, Westin, W Hotels, Le Meridien, St. Regis, Aloft, the Luxury Collection and Four Points, among others.

Under the terms of the agreement, Starwood shareholders will receive 0.92 shares of Marriott Class A common stock and $2 in cash for each share of Starwood common stock when the transaction closes. On a pro forma basis, Starwood shareholders would own approximately 37 percent of the combined company’s common stock after completion of the merger.

Total consideration to be paid by Marriott totals $12.2bn consisting of $11.9bn of Marriott International stock and $340m in cash.

Starwood shareholders will separately receive consideration from the spin-off of the Starwood timeshare business and subsequent merger with Interval Leisure Group, which has an estimated value of approximately $1.3bn to Starwood shareholders or approximately $7.80 per Starwood share. The timeshare transaction should close prior to the closing of the Marriott-Starwood merger.

Combined, the companies operate or franchise more than 5,500 hotels with 1.1 million rooms worldwide and had combined pro forma fee revenue of over $2.7bn for the 12 months ended Sept. 30. Together, the companies have 54 million Marriott Rewards members and 231 million Starwood Preferred Guest member.

Marriott expects to deliver at least $200m in annual cost savings in the second full year after closing by leveraging operating and general and administrative efficiencies, the companies said.

The announcement comes as no surprise to industry observers. Starwood in April announced that it was considering “strategic alternatives” and since July had explored possible deals with InterContinental Hotels Group, Wyndham Worldwide and independent investment funds, sources told Reuters news service.

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