“The driving force behind this transaction is growth”, said Arne Sorenson, the president and CEO of Marriott global. “This is an opportunity to create value by combining the distribution and strengths of Marriott worldwide Inc (NASDAQ:MAR) and Starwood, enhancing our competitiveness in a quickly evolving marketplace”, said Mr. Sorenson. Upon completion of the merger, Starwood shareholders are to own 37% of the combined company.
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Starwood’s agreement to sell its timeshare business to Interval Leisure supplants its earlier-announced plan to spin off the unit. Revpar rose 7.6 percent in Europe and 2.9 percent in the Middle East and Africa, while it fell 0.2 percent in the Asia-Pacific region, the lodging-research company said.
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.
Executives also emphasized it expected to reduce costs through the merger, and benefit from economies of scale, language which generally suggest a few service and job cuts in areas were they are now duplicated by both companies.
M. Sorenson said the companies haven’t started the process of antitrust review yet, but he said Marriott has about 10 per cent of the hotel rooms in the United States, while Starwood has about 3 to 4 per cent, so the combined company would be less than 15 per cent of the USA hotel supply.
At least three Chinese companies were pursuing bids for Starwood, according to a person with knowledge of the matter in October.
The deal is expected to close during mid-2016. It also said the deal would create $200 million in annual cost savings in the second full year after closing by leveraging back-office and operational efficiencies. Lazard and Citigroup served as advisers to Starwood.
Deutsche Bank Securities is the financial advisor to Marriott worldwide and Gibson, Dunn & Crutcher is its legal counsel. Its headquarters will be in Bethesda Maryland. The company reported revenues of almost $14 billion in fiscal year 2014. Marriott, in turn, has a well-established network of hotels including deep coverage of small towns and cities with its Fairfield Inn, Courtyard and Residence Inn brands.
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The agreed merger unites Marriott brands, which include Ritz-Carlton, Renaissance and JW Marriott, and Starwood marks like Westin, W and Sheraton into a giant that operates 5,500 hotels spanning a few 100 countries. Including the time-share segment, that values Starwood at roughly 13 times our 2016 enterprise value/EBITDA multiple (Starwood has more than $1 billion in net debt).
