Marriott (MAR) Buys Starwood (HOT) in $12.2B Hotel Mega Merger

Marriott global, Inc. has announced in a press release that it will be acquiring Starwood Hotels & Resorts Worldwide, Inc. for $12.2 billion.

Together, the company will be able to offer 1.1 million rooms in more than 5,500 hotels across more than 100 countries.

“The economies of scale really matter in the lodging business because higher volumes on the reservation system can drive business to less-occupied properties on a given night”, James Corl, a managing director at real estate private equity firm Siguler Guff & Co., said before the deal was announced. Long-time CEO Frits van Paasschen resigned earlier this year.

Two sources briefed on the deal said Starwood shares had rallied on media reports that the company was in talks with several potential buyers.

While Starwood is smaller than Marriott or Hilton, it has more hotels in China than any other USA hotelier, and an extensive operation in Hawaii.

Starwood’s brands will join such Marriott’s 19, which include The Ritz-Carlton, Residence Inn, and Courtyard.

On completion of the transaction, Starwood’s lifestyle brands and worldwide footprint will combine with Marriott’s strong presence in the luxury and select-service tiers, as well as the convention and resort segment.

The deal comes a few seven months after Starwood said its board was exploring a sale of the business. Starwood is expected to continue a program to sell company-owned hotels to franchisees, raising $1.5-$2.0 billion over the next two years. (“Starwood” or the “Company”) (NYSE: HOT) regarding possible breaches of fiduciary duties and other violations of law related to the Company’s entry into an agreement to be acquired by Marriott worldwide, Inc.

Shares of Marriott rose 2% to $74.21 in morning trading and Starwood fell 3.5% to $72.34.

Shareholder and regulatory approvals are also needed, and the acquisition is expected to close in mid-2016, the companies said. Then just last month, Hyatt was said to have its eye on the company. Starwood shareholders also get an additional $7.80 a share from the spinoff of the Starwood timeshare business and subsequent merger with Interval Leisure Group, which has an estimated value of approximately $1.3 billion.

“We will take the best of both programs and make sure the bests are preserved”, he said on the analyst call. Marriott CEO Arne Sorenson indicated he wasn’t interested at the time, but as Starwood sharpened its focus on appealing to younger travelers-around the same time that it put itself on the block, Starwood also launched the Tribute Portfolio, a collection of independently run hotels catering to affluent millennials-Marriott apparently grew more intrigued.