Marriott, Starwood merger creates world's largest hotel group

Marriott International and Starwood Hotels & Resorts announced on Monday that they have approved a definitive merger agreement under which the companies will create the world's largest hotel company.

Commenting on the deal, Mark Wynne Smith, global CEO of JLL’s Hotels & Hospitality Group, said the merger opened up a big gulf between the next largest players, Intercontinental Hotels Group and Hilton.

'We will now start to see further merger activity as other hotel groups seek to match the titanic organisation that Marriott and Starwood have created. Consolidation among the major brand companies has been talked about for a number of years and boards are biting the bullet on the need to merge to achieve further growth in a cost-efficient manner.

'At the moment there are several corporate hotel transactions at various stages. The merger can also be seen in the context of the growth of companies such as Airbnb. The global presence of this merged company will allow it to develop guest-centric technologies that other companies may struggle to fund.'

Combination
The transaction combines Starwood's lifestyle brands and international footprint with Marriott's 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 statement.

The new combine will operate or franchise more than 5,500 hotels with 1.1 million rooms worldwide.

Under the terms of the agreement, at closing, Starwood shareholders will receive a total of €11.4 bn, or 0.92 Marriott shares and $2.00 in cash for each Starwood share, representing a 6% premium over Starwood's 20-day volume weighted average price before the announcement.

On a pro forma basis, Starwood shareholders would own 37% of the combined company's stock after completion of the merger.

Marriott said it expects Starwood to continue its capital recycling programme, generating an estimated $1.5 to $2.0 bn of after-tax proceeds from the sale of owned hotels over the next two years. The hotels are expected to be sold subject to long-term operating agreements.

Arne Sorenson, president and CEO of Marriott International, said: 'The driving force behind this transaction is growth. 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.'

He will remain president and CEO of Marriott International following the merger.

Starwood revealed back in April that it had instructed advisor Lazard to explore 'strategic alternatives to increase shareholder value', sparking speculation about a possible sale.

The review - which came only two months after the resignation of CEO Frits van Paasschen - was announced during a presentation of the company's first quarter results which showed a slowing business with earnings per share dropping by 18% to $0.59 at end-March 2015, from $0.72 in the first quarter of 2014. Revenues fell 3% over the same 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, chairman of Starwood Hotels & Resorts Worldwide's board of directors.

Connecticut-based Starwood Hotels manages a total of 1,270 hotels worldwide and owns 36 hotels with a total of 13,500 rooms. A dozen of the owned hotel assets are located in Continental Europe or in the UK. Starwood Hotels controls the St. Regis, Westin, Sheraton and W Hotels brands.