Marriott to absorb Starwood

Hotel behemoth Marriott global is growing even larger, taking over rival chain Starwood in a $12.2 billion deal that will catapult it to become the world’s largest hotelier by a wide margin. 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.

A combined Marriott-Starwood group will operate 5000 rooms across 16 hotels in Australia, among them the Sydney and Melbourne Westin hotels, the Sydney Harbour Marriott Hotel and the Four Points by Sheraton at Darling Harbour.

“Our success has been driven by our ability to anticipate market shifts and meet those changes head on”, Marriott Chief Executive Arne Sorenson, who will lead the combined company, said on a conference call. However, Ashish Jakhanwala, MD and CEO of hotel asset company SAMHI hotels, that has both Starwood as well as Marriott flags on his properties, says “All brands are superior to the companies that own them – I think there will be happy co-existence”.

Starwood Hotels & Resorts Worldwide (NYSE:HOT) was downgraded by JMP Securities from an “outperform” rating to a “market perform” rating in a research note issued on Tuesday, StockTargetPrices.com reports. Starwood said in April that it was working on strategic alternatives, including a potential sale.

The deal solves a big question mark, which has been hanging over the Starwood brand for close to a year. “This is an opportunity to create value by combining the distribution and strengths of Marriott and Starwood, enhancing our competitiveness in a quickly evolving marketplace”. Starwood partners with Delta Air Lines, American Express and Uber while Marriott partners with United Airlines and Chase. InterContinental was also rumored to be in the bidding war, though it recently said otherwise.

The strong worldwide presence of Starwood is going to help Marriott. On the other hand, Marriott has a well-established network of hotels including coverage of small towns and cities with its Fairfield Inn, Courtyard and Residence Inn brands.

The merger comes as five-star hotel occupancy rates surge towards 90 per cent in Melbourne and Sydney and as Australia rides one of the biggest hotel development and investment booms in decades, driven by rising visitor numbers and the low Australian dollar.

The deal will come with $100 million to $150 million in one-time transaction costs, which the company expects to incur over the next two years.

“Our board concluded that a combination with Marriott provided the greatest long-term value for our shareholders, and the strongest and most certain path forward for our company”, said Bruce Duncan, chairman of Starwood. They will also get about $7.80 per share from the spinoff of Starwood’s timeshare business and subsequent merger with Interval Leisure Group Inc, announced in February.

The news has not resulted in higher stock activity on Wall Street, so far.

Information for this article was contributed by Scott Mayerowitz of The Associated Press, Leslie Picker and Chad Bray of The NY Times and Cyd King of the Arkansas Democrat-Gazette.