Marriott and Starwood agree $12.2bn merger

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.

News: Marriott to buy Starwood to create world's biggest hotel chain

NYC banking regulator reveals cyber security guidelines

BY Richard Summerfield

Unless you have been living under a rock for the last few years, it will not have escaped your attention that instances of cyber crime have become increasingly prevalent in the business community. It seems not a week goes by without a cyber breach grabbing the headlines – along with a swathe of sensitive data.

Various regulatory bodies have taken steps to guide firms through the minefield of cyber security. This week, New York’s leading banking regulator – the New York Financial Department of Services (NYDFS) – became the latest to follow suit. The NYDFS felt motivated to act as, in its own words, it "considers cyber security to be among the most critical issues facing the financial world today".

In a letter to other state and federal regulators, including the US Office of the Comptroller of the Currency and Federal Reserve Board of Governors, the NYDFS revealed details about its potential new cyber security regulations for the banks and insurance companies which fall under its jurisdiction. These regulations could include a requirement for institutions to notify companies of data breaches. "It is our hope that this letter will help spark additional dialogue, collaboration and, ultimately, regulatory convergence among our agencies on new, strong cyber security standards for financial institutions," wrote Anthony Albanese, NYDFS’ acting superintendent.

Organisations would also be obliged to ensure that contracts with third parties included a set of rules designed to keep sensitive data safe, including the use of multi-factor authentication, both internally and on customer log-on pages, and data encryption. Two step authentication is becoming increasingly popular online. Social media giants like Facebook and Twitter, services such as Gmail, and even online video games now offer multistep authentication. As such, it seems only logical that financial institutions embrace the technology.

Firms would also be required to appoint a chief information security officer if they do not already have one. The CISO would be responsible for overseeing policy, while cyber security staff would be required to undergo mandatory training.

Under potential new regulations, third party vendors – such as law firms, data processors and auditors – would also be required to achieve compliance moving forward.

News: NY banking regulator unveils details on planned cyber security rule

Phenomenon of 'too big to fail' banks at an end following regulatory action by FSB

BY Fraser Tennant

In a move that brings about the end of the phenomenon of banks being ‘too big to fail', the  Financial Stability Board (FSB) has this week unveiled its final Total Loss-Absorbing Capacity (TLAC) standard for global systemically important banks (G-SIBs).

The TLAC standard issued by the FSB, the body that coordinates regulation across the Group of 20 economies (G20), is essentially a buffer that will allow a big bank to fail whilst ensuring that no economic disorder ensues, as it did at the height of the 2007-09 financial crisis.

To do this, failing G-SIBs will be given access to sufficient loss-absorbing and recapitalisation capacity available for authorities to implement a resolution that minimises impacts on financial stability, maintains the continuity of critical functions, and avoids exposing public funds to loss.

Furthermore, the TLAC standard states a minimum requirement for G-SIBs bail-in but does not limit authorities’ powers to expose other liabilities to loss through bail-in or the application of resolution tools other than the TLAC. G-SIBs will also need to meet the TLAC requirement alongside the minimum regulatory requirements outlined in the Basel III framework (a comprehensive set of reform measures developed by the Basel Committee on Banking Supervision (BCBS)).

The existence of the TLAC tool follows on from the G20’s request in the wake of the financial crisis for the FSB to undertake a program of reforms such as increasing bank capital requirements, making derivatives markets more transparent and keeping a tighter rein on bankers' bonuses.

“The FSB has agreed a robust global standard so that G-SIBs can fail without placing the rest of the financial system or public funds at risk of loss," said Mark Carney, chair of the FSB. “This new standard, which will be implemented in all FSB jurisdictions, is an essential element for ending too-big-to-fail for banks. The economic impact assessments conducted as part of the detailed policy work shows that the economic benefits of the final standard far outweigh the costs.”

The FSB’s consultation period on a proposed standard on TLAC began in November 2014 in consultation with the BCBS; the final standard (November 2015) features numerous changes made following the consultation and impact assessment studies (also published this week).

In a letter to G20 leaders ahead of next week’s summit in Turkey (15 to 16 November), Mr Carney said that "countries must now put in place the legislative and regulatory frameworks for these tools (the TLAC standard) to be used."

News: G20 finalizes tools for ending 'too big to fail' banks

FTSE 350 board members should be 33 percent female, suggests Davies report

BY Fraser Tennant

A target that all FTSE 350 Index board members should be 33 percent female by 2020 is one of the key recommendations made in a new report by Lord Davies published this week.

As well as the call for more female representation on the boards of the UK’s largest companies, the Davies report, which is the culmination of five years work on gender equality, also includes a review of the female executive pipeline.

Additionally, the report reveals that the UK’s FTSE 100 has reached a significant milestone, with 25 percent of board positions now filled by women – a target set by Lord Davies in 2011.

“Looking back to 2011, I could not have predicted British business would have embraced the Women on Boards agenda as they have, or indeed that the 25 percent target would have been achieved six months ahead of schedule," said Lord Davies. “This is truly amazing progress. I cannot thank the many, many businessmen and businesswomen enough for their significant and collective contribution. It has been a privilege to lead this campaign.”

Overall, the Davies report makes recommendations in an additional four key areas. First, the national call for action and voluntary, business-led approach should continue for a further five-year period. Second, all FTSE listed companies are to assess the gender balance on their boards and take prompt action to address any shortfall. Third, FTSE 350 companies should extend the best practice seen at board level to improve gender balance and improve the representation of women on executive committees. Finally, an independent steering body (made up of business and subject matter experts with a newly appointed chair and members) should be convened to support business in their efforts and to act as a catalyst for sustained progress.

“Lord Davies has been an inspirational champion; he has thrown the gauntlet down to business and pushed them to do more than ever before," commented the minister for women and equalities, Nicky Morgan. “The government fully supports his recommendations because we are clear, that in order to deliver our commitment to extending opportunity we must do more to secure equality for women in the workplace and beyond.”

Following a review of the recommendations in consultation with key stakeholders, the steering body will detail its response in early 2016.

Report: Improving the Gender Balance on British Boards

M&A still the way to go - EY

BY Richard Summerfield

2015 has seen the continuation of considerable volatility and uncertainty in areas of the global economy. Commodities and currencies have remained unpredictable while emerging markets have floundered – China in particular has experienced a notable slowdown this year.

Yet despite these difficulties, companies have remained committed to pursuing M&A deals. 2015 has been a notable year for deal activity, and that appears certain to continue into 2016, according to a new report from EY.

EY’s latest biannual report – the Capital Confidence Barometer – surveyed 1600 senior executives from large multinationals about their global and domestic economic outlook.

The report suggests that companies remain confident about dealmaking in the current global climate, despite some considerable headwinds. Fifty-nine percent expect to pursue acquisitions over the coming 12 months, up from 56 percent of respondents in April’s report. EY believes that the swell in M&A appetite follows the stabilisation of business confidence among top companies.

Notably, many firms are looking to complete deals outside of their typical industry boundaries. According to EY, this strategy toward targeting cross sector deals has been partly driven by changing customer preferences and the impact of innovative disruption.

Cross-border activity is also set to play a key role in shaping M&A activity. As competition for assets and value creation heats up, companies are continuing to look beyond their national borders to target new areas of growth. According to the survey respondents, the eurozone is an increasingly attractive investment location.

“In short, M&A is back as an essential mechanism for generating long-term value. With global macroeconomic growth tempered and their industries perpetually challenged, executives are searching for more than organic growth,” says Pip McCrostie, EY’s global vice chair of transaction advisory services. “In government and global leadership circles, ‘sustainability’ has long been a buzzword for big-picture thinking about the interdependence of nations and resources to support development worldwide. In their way, executives are pursuing their own form of corporate sustainability, reimagining their businesses to both safeguard the last decade’s cost-reduction rigor and build the next decade’s platform for growth."

Report: EY Capital Confidence Barometer, October 2015