Marriott buys Starwood Hotels for $12.2 billion, creates world’s largest hotel

Shareholders will receive consideration from the spin-off of the Starwood timeshare business and subsequent merger with Interval Leisure Group, which has an estimated value of approximately $1.3 billion to Starwood shareholders or approximately $7.80 per Starwood share.

The combined company will have over 5,500 hotels with 1.1 million rooms worldwide, giving Marriott greater presence in markets such as Europe, Latin America and Asia and allowing it to better compete with apartment-sharing startups such as Airbnb.

There has been plenty of rumor and speculation in recent months about what would happen to Starwood Hotels & Resorts since its board of directors made a decision to look for ways to maximize shareholder value. Marriott shares were already forecast to rise 15 percent over the next 12 months. Starwood stock has fallen 14% since the announcement in April that the company was looking for a buyer. The interest intensified in the second half of October. At that point, “We became more and more convinced that there was value we could create having the two companies pulled together”, Sorenson said. “If this is the case I think we can say bye-bye to suite upgrades, as many Marriott properties have very few suites”.

“The driving force behind this transaction is growth”, Sorenson said in a statement.

It is anticipated that the combined company would deliver significant capital returns to shareholders.

Wouter Geerts, a travel analyst at the research company Euromonitor global, said the news was a surprise, particularly because there were strong indications of a Hyatt deal with Starwood. He noted that in the U.S., the hotel business is a “highly competitive and dispersed industry”.

Moody’s is maintaining a stable ratings outlook, despite its concerns with Starwood’s operating performance – especially its weak “RevPAR”, or revenue per available room. Indeed, TheStreet’s Jim Cramer said that “this is a awful deal for Starwood shareholders” on CNBC’s Squawk on the Street. “It’s a good thing that we will have more sources (of growth) from around the world”. Its W brand is known for having a stylish, modern edge.

During a conference call Monday morning, Marriott CEO Arne Sorenson said the deal is expected to result in about $200 million in cost savings, with a few savings coming by uniting duplicative services, such as those for taking reservations and accounting, and other operational efficiencies. Both companies expect to close the deal next year.

The stock and cash deal should bolster Marriott prospects in the hospitality business with the addition of 50% more rooms.