Marriott global to Merge With Starwood Hotels and Resorts Worldwide

Marriott global has agreed to buy Starwood Hotels & Resorts Worldwide for $12.2bn (£8bn), in a move that will create the world’s largest hotels chain with 1.1 million rooms.

The acquisition, which requires shareholder and regulatory approval, has a current value of $72.08 per Starwood share, including the $2 cash per share consideration; and is expected to close by the middle of next year.

Starwood shares fell 3.4 percent to $72.45 at 10:31 a.m.in NY. By leveraging operating and G&A efficiencies, Marriott expects to deliver at least $200 million in annual cost savings in the second full year after closing.

Together, both companies would franchise or own over 1.1 million rooms and 5,500 hotels throughout the world.

Marriott is buying Starwood, making it the largest hotel company in the world.

The deal came after Starwood announced last month that it would separately spin-off its time-share business, Vistana Signature Experiences, and merge it with a subsidiary of Interval Leisure Group.

In a statement, Marriott executive chairman J.W. Marriott, Jr said, “We have competed with Starwood for decades and we have also admired them”. Starwood left “no stone unturned” in its process of seeking a buyer, said the sources, who asked not to be named because they were not authorized to speak on the record.

The Marriott-Starwood deal also marries two enormous loyalty programs, although gauging the combined size is hard, since the 54 million combined membership in Marriott’s Marriott Rewards and The Ritz-Carlton Rewards overlap with Starwood’s 21 million Starwood Preferred Guest members.

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.

Starwood consists of 11 brands that include W Hotels, Westin, Aloft and St. Regis.

According to Adam Aron, Starwood Hotels & Resorts Worldwide’s interim chief executive officer, there is a “tremendous upside potential” to this deal.

Marriott worldwide (MAR) will have the same investment grade credit rating (Baa2) after it purchases Starwood Hotels (HOT), Moody’s Investors Service said in a Monday note.

“The deal makes sense from a strategic perspective”, Lukas Hartwich, an analyst at real estate research firm Green Street Advisors, said in an email.

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.