The deal, one of the biggest since Blackstone Group LP bought Hilton Worldwide Holdings Inc for $26 billion in 2007, could spark industry consolidation.
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Marriott said the deal would be accretive to earnings in the second year after the merger closes, which the companies expect will be the middle of 2016. “This will be accomplished by leveraging operating and G&A efficiencies”. Marriott’s Starwood purchase would be the fourth-largest lodging acquisition ever. “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”, Marriott CEO Arne Sorenson said in a statement.
Marriott is offering 0.92 share along with $2 in cash for each Starwood share, for a total of $11.9 billion in stock and $340 million in cash. Upon completion of the merger, Starwood shareholders are to own 37% of the combined company. Starwood will spin-off its timeshare business.
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.
“I’m delighted to welcome Starwood to the Marriott family”, Marriott chairman J.W. Marriott Jr. said. At that point, “We became more and more convinced that there was value we could create having the two companies pulled together”, Sorenson said.
With the addition of three Starwood members, Marriott’s board will increase to 14.
“The deal makes sense from a strategic perspective”, Lukas Hartwich, an analyst at real estate research firm Green Street Advisors, said in an email.
In the deal announced Monday, both Marriott and Starwood agreed that either company would owe the other $400 million if it pursued an alternative transaction.
For making this deal possible, Starwood was being advised by Lazard and Citigroup, while Deutsche Bank Securities advised Marriott. Furthermore, Marriot plans to keep its headquarters in Bethesda, Maryland. That, combined with a lack of revenue growth (its sales are projected to climb less than 2 percent next year, versus an estimated 8 percent gain for Marriott), has put Starwood at a disadvantage.
The Stamford-Conn.-based Starwood had suffered in recent years because unlike its competitors, it had not grown its brands in North America.
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Marriott operates such chains as Fairfield Inn & Suites and Ritz-Carlton while Starwood’s brands include St. Regis, W, Westin and Sheraton. They will also receive $2 for each of Starwood common stock held.
