Starwood owns 1,270 hotels and resorts around the world under 11 brands, including St. Regis, W Hotels, Sheraton, Westin, Le Meridien and others.
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Starwood in April (LSE: 0N69.L – news) announced it had hired investment bank Lazard to consider strategic options, including a possible sale of the company.
In midday trade, shares of Starwood were down six percent at $70.49, while Marriott was off 0.4 percent at $72.43.
Starwood shares were down 3.3% at $72.50 in pre-market trading yesterday, while Marriott shares were up 1.7% at $74.01.
Sorenson said the merger should offer the consumer a broader choice of brands, improve the economics for franchisees and owners, increase the unit growth and enhance the long term value for shareholders.
Marriott estimated $100 million to $150 million in charges related to the deal and annual savings of at least $200 million starting the second year after the transaction closes.
The deal is expected to close during mid-2016.
Starwood’s stock closed at $74.99 per share on Friday, November 13, down from $76.23 per share one year ago. Marriott Rewards, with 54 million members, and Starwood Preferred Guest, with 21 million members, are among the industry’s most-awarded loyalty programs, driving significant repeat business. We are evaluating the financial impact to our current $68 fair value estimate for Marriott, but do see the deal as strategically positive for the combined companies, positive for narrow-moat TripAdvisor, and negligible for narrow-moat online travel agents Expedia and Priceline. Starwood (HOT) closed at $75.00.
Marriott was drawn in particular to Starwood’s large worldwide presence and its appeal to younger travelers, Sorenson said.
Last month, the Chicago-headquartered Hyatt Hotels Corporation was linked with a takeover, and there was also speculation about a tie-up with InterContinental Hotels Group. The timeshare transaction should be complete prior to the Marriott-Starwood merger closing.
“The economies of scale really matter in the lodging business because higher volumes on the reservation system can drive business to less-occupied properties on a given night”, said Mr James Corl, a managing director at real estate private equity firm Siguler Guff and Co. On a pro forma basis, Starwood shareholders would own approximately 37% of the combined company’s common stock after completion of the merger using fully diluted share counts as of 30 September, 2015.
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Moody’s is maintaining a stable ratings outlook, despite its concerns with Starwood’s operating performance – especially its weak “RevPAR”, or revenue per available room.
