Marriott, Starwood to Merge to Create Worlds Largest Hotel Company

Marriott International, Bethesda, Md., will purchase Starwood Hotels & Resorts Worldwide, Stamford, Conn., for $12.2 billion in a deal that should close in mid-2016, the two firms reported. 

The merged companies will create the world’s largest hotel chain, encompassing more than 30 brands including Marriott’s Ritz-Carlton and Gaylord hotels as well as Marriott-branded properties and Starwood’s Sheraton, Westin, St. Regis and Aloft flags.   

Marriott currently operates more 4,300 properties compared to Starwood’s 1,270 hotels. The combined compannies will own 1.1 million rooms worldwide. The two firms’ revenue for the year ending in September exceeded $2.7 billion.  

“The driving force behind this transaction is growth,” said Marriott International President and CEO Arne Sorenson. “This is an opportunity to create value by combining the distribution and strengths of Marriott and Starwood.”   Sorenson will remain president and CEO of Marriott International following the merger and Marriott’s headquarters will remain in Bethesda. Marriott’s Board of Directors will increase to 14 members with three new members from Starwood’s board.  

Starwood shareholders will receive 0.92 shares of Marriott International Class A common stock and $2.00 in cash for each share of Starwood common stock, meaning total consideration paid by Marriott will consist of $11.9 billion of stock and $340 million in cash.  

The hotel sector continues to thrive. TravelClick, New York, said average daily room rates increased in nearly 90 percent of the 25 largest North American markets in October.

Sorenson told the Washington Post he plans to open 45,000 hotel rooms–about one hotel a day–worldwide this year.  

“Our board concluded that a combination with Marriott provides 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 Hotels board of directors.  

Marriott said it expects at least $200 million in annual cost savings in the second year due to economies of scale in reservations, procurement and shared services. “We expect that these enhanced efficiencies and revenue opportunities should drive improved property-level profitability as well as greater owner and franchisee preference for the combined company’s brands,” the firms said in a joint statement. They expect to incur $100 to $150 million in one-time transaction costs for the merger.  

Marriott will assume Starwood’s recourse debt at closing. The firm said it will maintain an investment-grade credit rating after the merger.