The deal will see Starwood shareholders receive 0.92 Marriott Class A shares and 2 U.S. dollars (£1.32) in cash for each Starwood share, the companies said.
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Starwood shares fell as much as 8 per cent to $US68.96 on Monday, way below the offer price of $US72.08.
The deal came after Starwood announced last month that it would separately spin-off its time-share business, Vistana Signature Experiences, and merge it with a subsidiary of Interval Leisure Group.
There had been speculation about a potential deal with the Holiday Inn owner Intercontinental Hotels Group, and more recently Hyatt Hotels.
Starwood, unable to grow as fast as its rivals, announced back in April that it would explore strategic options for the hotel company. The company expects “at least $200 million in annual cost savings in the second full year after closing”, and anticipates the deal adding to earnings “by the second year after the merger”, minus transaction costs.
“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”.
“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 deal is expected to close in the middle of 2016.
Says Vijay Thacker, Director, Horwath HTL – India, “The two companies will have to work it out amongst themselves…there may be a few brand consolidation on the cards”.
Bethesda, Md.-based Marriott global owns more than 4,300 properties in 85 countries.
The combined company now contains 30 hotel brands, including Starwood’s St. Regis, pictured above. The companies noted that Starwood’s shareholders will be getting an additional $7.80 from the spinoff of its timeshare business, but the stock was down more than 5% at $71.12 in trading Monday.
Marriott will lead following the merger of the two companies and its current CEO will remain the head of the company.
“The driving force behind this transaction is growth”, Sorenson said in a statement.
Adam Aron, Starwood’s interim CEO, said the merger will also provide new career opportunities for Starwood’s employees. “Given Starwood’s leaderships in this area, we expect the combined companies will be even stronger with the best talent of both companies”.
Sorenson told CNBC that Marriott’s executives were not excited about purchasing Starwood at first. It’s also worth noting that Marriott will assume Starwood’s recourse debt at the closing of the transaction.
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Starwood’s stock closed at $74.99 per share on Friday, November 13, down from $76.23 per share one year ago.
