Marriott International Inc. is becoming the world's largest hotelier after the company announced its plans to acquire Starwood Hotels & Resorts Worldwide Inc. for a cash-and-stock deal valued at $12.2 billion. The combined company will have over 5,500 hotels with 1.1 million rooms worldwide.
The Marriott-Starwood deal marks the largest hotel deal since the private equity firm Blackstone Group purchased Hilton Worldwide for $26 billion in 2007. It will also be the biggest merger of top hotel brands including Sheraton, Westin, W, Aloft and St. Regis, Marriott's Courtyard, Ritz-Carlton and Fairfield Inn. According to Reuters, the acquisition will also give Marriott a greater presence in markets in Europe, Latin America and Asia, allowing it to better compete with apartment-sharing startups such as Airbnb.
"Our success has been driven by our ability to anticipate market shifts and meet those changes head on," Marriott Chief Executive Arne Sorenson, who will lead the combined company, said on a conference call on Monday.
Also on Monday, Starwood shares declined as much as 8 percent to $68.96, way below the offer price of $72.08, before closing 3.6 percent lower at $72.27. Marriott shares also fell almost 3.2 percent, before closing 1.3 percent lower, as hotel and airline shares weakened on heightened concerns that the recent Paris attacks on Friday could limit travel.
In April, Starwood had essentially put itself up for sale after the company announced that its board was considering strategic alternatives, Christian Science Monitor noted. And since July, Starwood had also reached out to InterContinental Hotels Group Plc, Wyndham Worldwide Corp and sovereign wealth funds for a possible deal. Sources said competing bids for Starwood comprised a mix of stock and cash worth about the same as the Marriott offer. As of Friday, Starwood has a market value of $12.67 billion as of Friday.
Starwood has been struggling to grow as fast as its rivals especially in "limited service hotels," smaller properties that don't have restaurants or banquets and are located on the side of the highways, near airports or in suburban office parks. While there have been market rumors about a potential deal with Intercontinental Hotel Group and Hyatt Hotels Corp, it was the offer of Marriott that succeeded after the boards of both companies unanimously approved the acquisition.
Following the deal, Marriott's board of directors will increase from 11 to 14 members, with the expected addition of three members from Starwood's board. The company also said it expects to deliver at least $200 million in annual savings in the second full year after closing.
"This is a transformative event for Marriott. When we look at Starwood, we see many aspects of its business that complement Marriott," Sorenson said Monday in a briefing with investors, as per Washington Post. While Starwood's CEO Adam Aron said, "To be successful in today's lodging space, a wide distribution of brands and hotels across price points is critical. Today, size matters."
The cash-and-stock deal of Marriott and Starwood's combined company, which would have 30 brands, is expected to be finalized in mid-2016, pending approval by shareholders and regulators. And for the deal, Starwood was advised by Lazard and Citigroup while Deutsche Bank Securities advised Marriott.
