Marriott International (MAR, Financial) is about to become the globe’s biggest hotel company after locking down a $12.2 billion deal to purchase a struggling Starwood Hotels & Resorts (HOT, Financial). After taking on Starwood’s award-winning stable of brands in mid-2016, Marriott will expand its portfolio to over 1.1 million rooms across the world.
Under the terms of the agreement, Starwood shareholders will receive 0.92 shares in Marriott and $2 in cash for each share in Starwood. The offer represents a premium of around 6% over Starwood’s stock price using the 20-day VWAP ending Nov. 13, and a premium of 19% using its 20-day VWAP ending Oct. 26.
By the time everything is said and done, Marriott will have handed over approximately $12.2 billion consisting of $11.9 billion in Marriott stock, along with $340 million in cash based on some 170 million fully diluted Starwood shares. Starwood shareholders will then own approximately 37% of the combined company’s common stock on a pro forma basis.
One-time transaction costs for the merger are expected to hit up to $150 million, with numerous transition costs anticipated over the next two years. It’s also worth noting that Marriott will assume Starwood’s recourse debt at the closing of the transaction.
Marriott’s latest acquisition represents the industry’s biggest deal since Blackstone spent $26 billion taking Hilton Hotels private in 2007.
Marriott CEO Arne Sorenson has already announced big plans for Starwood and its blockbuster brands – which include Sheraton, St. Regis and W Hotels. From the get-go, Sorenson's new combined company is expecting to deliver at least $200 million in annual cost savings by leveraging operating efficiencies.
Then, the chain hopes to take advantage of Marriott’s worldwide development organization in order to rapidly accelerate the growth of Starwood’s brands. In return, Marriott will no doubt be keen to utilize Starwood's upscale names to hasten its expansion into China.
“The driving force behind this transaction is growth,” Sorenson said in a statement.
“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. I know we’ll do great things together as The World’s Favorite Travel Company.”
This week’s merger was announced just two weeks after Starwood was forced to spin off its time-share business for a tune of $1.3 billion – for which shareholders will receive $7.80 per share. Up until then, Starwood’s shareholders haven't had much to cheer about lately.
Despite its possession of some of the globe’s top up-and-coming hotel brands, the company has spent much of the past couple of years struggling to wrap its head around the changing face of its own industry. Analysts said long-time Starwood CEO Frits van Paasschen held the company back in terms of growth by focusing too much on emerging markets that simply were not paying off – while simultaneously neglecting sky-high demand for fresher brands in North America.
Shares in Starwood had been engaged in a period of long decline until Paasschen announced his resignation earlier this year. His team subsequently announced that a long-term strategy review would be conducted in Paasschen’s wake, which shareholders took to mean that a buyout must be on the horizon. Shares have been slowly clawing their way back ever since the announcement, having finished at just under $75 at the close of trading last week.
“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,” explained Bruce Duncan, Starwood’s chairman.
“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.”
Shares in both companies have been climbing steadily in the wake of Monday morning's announcement.
