Marriott buying Starwood hotel chain for $12.2B

Marriott global, 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.

Analysts said they did not expect antitrust objections as the combined company would hold less than 20 percent of all US hotel rooms. M&A deals in the country this year have surpassed $2tn, up 55% on the same period last year, with the technology and pharmaceuticals sectors leading the way. Under the terms of the deal, Marriott will pay $72.08 a share in cash and stock for Starwood, whose brands include Westin, the W, Sheraton and St. Regis. Additionally, Starwood shareholders will get $7.80 per share from Interval for the time-share segment. Upon completion of the merger, Starwood shareholders are to own 37% of the combined company.

The deal is expected to close in mid-2016, the companies said.

Starwood has been the subject of sales talks since April, when it announced it was looking to make a deal. Most experts took that to mean the company would go up for sale.

There has been plenty of rumor and speculation in recent months about what would happen to Starwood Hotels & Resorts since its board of directors chose to look for ways to maximize shareholder value. Starwood (HOT) closed at $75.00. But it hasn’t done anything like the deal it announced today (Nov. 16).

The agreement price gives nearly 19% premium over Starwood’s average stock price during 20-days period ending on October 26.

Deutsche Bank served as adviser to Marriott.

Marriott chief executive Arne Sorenson, who will head the new group, said the two firms hoped to become “the world’s favourite travel company”.

“The driving force behind this transaction is growth”. The biggest impact on the Indian hospitality landscape will come from the huge loyalty programmes these chains run. The company has expanded overseas faster than its rivals; roughly half of its more than 350,000 rooms are outside the US.

Sorenson told CNBC that Marriott’s executives were not excited about purchasing Starwood at first. Describing complexity of combining the two companies, he noted that “we’ll have our hands full”.

“Even before our discussions with Starwood, we were focused on increasing our appeal to younger travelers, expanding our lifestyle brand offerings and introducing new designs to appeal to change in customer expectations and tastes”, Sorenson said on a conference call with investors.

Starwood has much to gain with the help of Marriott’s relationships as well.