Saturday, January 2, 2016

Marriott-Starwood union creates world’s largest hotel group

The world of hospitality got a little cozier November 16 when US-based Marriott International announced it will acquire Starwood Hotels & Resorts Worldwide. This US$12.2 billion wedding will create the world’s largest hotel company. Many readers will wonder what will happen to their Marriott Rewards and/or Starwood Preferred Guest status, which is exactly why we picked up this story from the wire. More on that later…

The agreed merger unites Marriott brands, which include Ritz-Carlton, Renaissance and JW Marriott, and Starwood names such as Westin, W and Sheraton into a giant that operates 5,500 hotels spanning some 100 countries.

The acquisition will further Marriott’s goal of boosting its presence in key emerging markets China and India, where Starwood is well-represented, as well as in Europe, executives said.

“The driving force behind this transaction is growth,” said Marriott chief executive Arne Sorenson.

“To be successful in today’s marketplace, a wide distribution of brands and hotels across price points is critical,” said Adam Aron, acting chief executive at Starwood. Both companies are also big players in North America.

The two companies had combined revenues of nearly US$19 billion in 2014 and currently have about 1.1 million rooms worldwide. The combined company will dwarf number-two global hotelier Hilton, which has 4,500 hotels and 735,000 rooms.

Loyalty programs in focus

Wouter Geerts, travel analyst at Euromonitor International, said the union between two such large companies differs from other recent hotel mergers, which have seen big companies like Marriott buy regional players such as Delta Hotels and Resorts, a Canadian company.

A key question is the future of the two companies’ customer loyalty programs, Geerts said.

“As brand loyalty remains important in the hotel industry, it can be expected that individual brands will change little in their offering and price level,” Geerts said.

“The major impact of this acquisition for travelers will therefore be around the loyalty schemes of both companies. It has to be seen whether Starwood Preferred Guests will be swallowed up by Marriott Rewards/Hyatt Gold Passport.”

Starwood’s future has been a subject of speculation since Frits van Paasschen unexpectedly resigned as chief executive in February following a disagreement with board members over strategy.

Starwood in April announced it had hired investment bank Lazard to consider strategic options, including a possible sale of the company. Companies earlier discussed as possible buyers included InterContinental Hotels, the Chinese company Jin Jiang International and Hyatt Hotels.

Marriott said the deal would allow it to notch US$200 million in annual cost savings annual in the second full year after closing. Starwood is expected to continue a program to sell company-owned hotels to franchisees, raising US$1.5-$2.0 billion over the next two years.

Analysts said that Marriott could opt to divest itself of Starwood’s underperforming Sheraton chain, but may also choose to invest in turning it around.

Starwood shareholders will receive 0.92 shares of Marriott International, Class A common stock and US$2.00 in cash for each share of Starwood common stock, a joint statement from the companies read.

Starwood shareholders will separately receive about US$7.80 per share from a transaction set to close prior to the Marriott-Starwood merger closing — the spin-off of the Starwood timeshare business and its merger with Interval Leisure Group, which has an estimated value of approximately US$1.3 billion.

Marriott chief executive Sorenson will lead the combined company, which will be based at Marriott headquarters in Bethesda in the US state of Maryland. The transaction is expected to close in mid-2016.

In midday trade, shares of Starwood were down six percent at US$70.49, while Marriott was off 0.4 percent at US$72.43.

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