Marriott to buy Starwood, creating the world’s largest hotel chain

Marriott worldwide paid $12.2 billion in stock and cash in the deal, which creates the world’s largest hotel company.

Starwood shareholders are set to receive 0.92 of a Marriott share and $2 in cash per Starwood share, and will collectively own about 37% of the merged hoteliers’ common stock.

Just a few hours after the deal was announced on Monday, Starwood shares dropped 3.6 percent and closed at US$72.27 (AU$102.03), while Marriott witnessed a rise of 1.4 percent in shares, closing at US$73.72 (AU$104.07), reported BBC. Starwood is a fully integrated owner, operator and franchisor of hotels, resorts and residences under the renowned brands: St. Regis, The Luxury Collection, W, Design Hotels, Westin, Le Méridien, Sheraton, Four Points by Sheraton, Aloft, Element, and the recently introduced Tribute Portfolio. There were rumors that the company was in talks with Intercontinental hotels and recently Hyatt Hotels Corp about a potential deal. In April, the organization announced that it is considering strategic alternatives, which also include a sale.

Marriott will not be acquiring all of Starwood’s current business though.

Marriott said the total one-time cost of the transaction will range between 100 million and 150 million U.S. dollars (£66 million and £99 million).

Marriott expects the merger to increase earnings in its second year. The Marriot and Starwood purchase deal is expected to close sometime mid-2016. Marriott Rewards, with 54 million members, and Starwood Preferred Guest, with 21 million members, are among the industry’s most-awarded loyalty programs, driving significant repeat business. The new hotel company is now the largest in the world, with more than 5,500 hotels and 1.1 million rooms worldwide, according to a joint press release.

Sorenson said the merger should offer the consumer a broader choice of brands, improve the economics for franchisees and owners, increase the unit growth and enhance the long term value for shareholders.

Executives also emphasized it expected to reduce costs through the merger, and benefit from economies of scale, language which generally suggest a few service and job cuts in areas were they are now duplicated by both companies. That, combined with a lack of revenue growth (its sales are projected to climb less than 2 percent next year, versus an estimated 8 percent gain for Marriott), has put Starwood at a disadvantage.

In the high-end hotel market, Starwood has historically been a strong performer. Starwood is more global than Marriott is. and we think it is a good thing we will have more sources around the world.