BY Richard Summerfield
US hotel chain Marriott International has agreed to acquire its rival Starwood Hotels & Resorts Worldwide, Inc for around $12.2bn. The deal, once completed, will create the world’s largest hotel chain.
Marriott will pay $11.9bn in stock and the rest in cash. The deal is expected to close in mid-2016.
Under the terms of the deal, Starwood’s shareholders will get 0.92 shares of Marriott and $2 in cash for each share of Starwood common stock held. Separately, they will also get $7.80 per Starwood share upon completion of a spin-off of the company's timeshare business to Interval Leisure Group. The total valuation of each Starwood share is around $72.08, a premium of roughly 19 percent on the company’s share price before rumours of the deal began to appear.
Both boards have unanimously agreed to the merger, although the deal is still contingent on shareholders approval, as well as regulatory approval and other customary closing conditions.
In a joint statement announcing the deal, Arne Sorenson, president and chief executive of Marriott International, said: “The driving force behind this transaction is growth. 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. This greater scale should offer a wider choice of brands to consumers, improve economics to owners and franchisees, increase unit growth and enhance long-term value to shareholders. Today is the start of an incredible journey for our two companies. We expect to benefit from the best talent from both companies as we position ourselves for the future”.
Combined, the new company will operate around 5500 hotels worldwide and more than one million rooms. By comparison, Hilton Worldwide, the next largest hotel company, has around 4400 properties and approximately 720,000 rooms.
Bruce Duncan, chairman of Starwood, said: “During our comprehensive review of strategic and financial alternatives, it was clear that our talented people, world-class brands, global leadership and spirit of innovation were much admired and key drivers of our value. 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. Starwood shareholders will benefit from ownership in one of the world’s most respected companies, with vast growth potential further enhanced by cost synergies. Starwood’s shareholders will also receive the value of the previously announced sale of our vacation ownership business to Interval Leisure Group, which is not part of this transaction.”
Following completion of the merger, Marriott’s board will increase from 11 to 14 following the addition of three members of Starwood’s board. Marriott expects to deliver annual synergies of at least $200m in the second full year after the transaction closes.