Two of the world’s expansion-minded hotel chains are joining forces, as Marriott International has agreed to acquire Starwood Hotels & Resorts Worldwide in a deal valued at $12.2 billion. Marriott will pay $11.9 billion in stock and $340 million in cash. Marriott will also assume Starwood’s recourse debt.
If this deal, which Marriott and Starwood signed on Nov. 17, closes as expected, it would create the world’s largest hotel company, with 5,500 properties and more than 1.1 million rooms, operating under 30 brands in more than 100 countries.
Marriott, based in Bethesda, Md., and Starwood, based in Stamford, Conn., are big franchisors, with most of Marriott’s properties and about half of Starwood’s 1,270 hotels operating as franchises owned by private investors.
There are 54 million members in the Marriott Rewards program, and 21 million in Starwood’s Preferred Guest loyalty program. These programs differ in complexity and how points are earned and rewarded, so they will need to be reconciled as a result of this deal, which is expected to close by next summer.
Marriott’s president and CEO, Arne Sorenson, projected that this combination to generate $200 million in annual savings by the second full year after this deal is closed, although he did not provide specifics. Industry observers expect there could be some brand shakeouts.
Starwood will spin off its timeshare business.
Starwood has been on the block since last sprint, and its management had been talking with several investors and competitors about merger possibilities. The Los Angeles Times and other news outlets report that as recently as last month, three Chinese companies had expressed interest in acquiring the hotelier.
Phoenix's Sheraton Hotel. Marriott will look to improve growth of Sheraton, a Starwood brand. Photo: Kevin Dooley/Creative Commons.
Sorenson told CNBC that his company and Starwood started negotiating about seven months ago, and signed nondisclosure agreements. “Initially, we were dissuaded. We thought the company was expensive and we backed away a bit,” he recalled. But Starwood became more attractive to Marriott as “the months went by and we saw a relative shift in the value of the company.” Starwood’s stock price lost about 15% of its value during the negotiating period.
“Our board concluded that a combination with Marriott provides the greatest long-term value for our shareholders and the strongest and most certain path forward for our company,” said Bruce Duncan, Starwood’s chairman. “Starwood shareholders will benefit from ownership in one of the world's most respected companies, with vast growth potential further enhanced by cost synergies.”
Marriott plans to accelerate the growth of Starwood’s brands, which include such well-known names as Sheraton and Westin, and boutique brands like W and Aloft. “The combined company will have a broader global footprint,” it stated.
In its most recent quarterly report to shareholders, released on October 28, Marriott anticipated that its room count in 2015 would increase by 7% to 8%, including 9,600 rooms from its earlier acquisition of Delta Hotels. Marriott expected its room count to increase by another 8% in 2016. “Nearly 40% of our more than 260,000-room pipeline is already under construction,” the company stated.
The big question for AEC firms with hospitality practices is how the Marriott-Starwood combo might affect the two companies’ design and construction choices, and whether this deal triggers more mergers-and-acquisition activity in that sector, further reducing their client pool.
Related Stories
| Aug 11, 2010
Silver Award: Palmer House Hilton Hotel & Shops Chicago, Ill.
Chicago's Palmer House Hilton holds the record for the longest continuously operated hotel in North America. It was originally built in 1871 by Potter Palmer, one of America's first millionaire developers. When it was rebuilt after the Great Chicago Fire it became the first hotel in the U.S. to put a telephone in every room.
| Aug 11, 2010
Gulf Coast Hotel's Stormy Road to Recovery
After his initial tour of the dilapidated 1850s-era Battle House Hotel, Ron Blount, construction manager with Retirement Systems of Alabama, said to his boss: “You need a priest more than you need a contractor.” Those words were more prescient to RSA's restoration of the historic Mobile landmark than he could have known at the time.
| Aug 11, 2010
Lifestyle Hotel Trends Around the World
When the Rocco Forte Collection opens the Verdura Golf & Spa Resort in Sicily in early 2009, the 200-room luxury property will be one of the world's newest lifestyle hotels. Lifestyle hotels cater to guests seeking a heightened travel experience, which they deliver by offering distinctive—some would say avant-garde, or even outrageous—architecture, room design, amenities, and en...