Marriott agrees to buy Starwood Hotels group in £8bn deal

Marriott global announced Monday it has struck a deal to purchase Starwood Hotels & Resorts Worldwide in a mostly stock sale worth about $12.2 billion.

The chain said it plans to generate 1.5 billion to 2 billion USA dollars (£986 million to £1.3 billion) by selling hotels over the next two years, primarily under long-term operating agreements.

Starwood shareholders will get 0.92 shares of Marriott international’s class A common stock and $2 in cash per Starwood common share. The combination will create the world’s largest hotel company. As its stock traded behind its peers, the company’s president and chief executive, Frits van Paasschen, resigned and was replaced by Adam Aron, a director, on an interim basis.

Marriott worldwide, which already has the industry’s highest room count, has agreed to buy Stamford, Connecticut-based Starwood for about $12 billion, 98 percent of which is being paid in Marriott stock.

Assuming that it receives the appropriate shareholder backing, the deal is expected to close by mid-2016. Starwood shareholders would own 37 per cent of the combined company.

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. At that point, “We became more and more convinced that there was value we could create having the two companies pulled together”, Sorenson said.

Big Starwood hotels in downtown SF include the St Regis, the Palace, the W and the Le Meridien. Then just last month, Hyatt was said to have its eye on the company.

M. Sorenson said the companies haven’t started the process of antitrust review yet, but he said Marriott has about 10 per cent of the hotel rooms in the U.S., while Starwood has about 3 to 4 per cent, so the combined company would be less than 15 per cent of the U.S. hotel supply.

Marriott said it expected to deliver at least $200m in annual savings in the second full year after the deal was completed. Fitch expects Marriott will assume Starwood’s outstanding unsecured bonds and/or refinance any of Starwood’s bonds that may be subject to change of control provisions that are triggered by this transaction. Kyo-ya Corp. owns the Sheraton Waikiki, Royal Hawaiian, Moana Surfrider and Princess Kaiulani hotels, which all carry Starwood brands.

While stock deals are generally less attractive for shareholders than getting the chance to cash out, most hoteliers – including Marriott – have delivered better returns than Starwood.