Marriott International, based in Bethesda, announced today that it will buy Starwood Hotels & Resorts for $12.2 billion, making it the world’s largest hotel company. The combined company will own 5,500 franchise hotels with 1.1 million rooms and 30 brands.
Starwood has been struggling financially for quite some time, making them a good target for an overhaul and rebranding. Research analyst David Loeb suggested that combining the two hotel chains will great “value over time.” And even in the short term, Starwood shareholders will benefit greatly from the merger.
“This is a transformative event for Marriott,” said Arne Sorenson, Marriott’s president and chief executive. “When we look at Starwood, we see many aspects of its business that compliment Marriott.”
Marriott is particularly interested in Starwood’s international presence and its appeal for younger travelers.
The combined annual revenue is estimated at $2.7 billion, which, according to Sorenson, will make opening new hotels and operating existing ones much more cost-effective and efficient. In addition, Marriott expects to cut $200 million on annual costs by 2018. Sorenson will remain president and chief executive, and the company’s board will increase to 14 by adding members of Starwood’s board to the table.
So what do investors have to look forward to? When the deal is finalized in mid-2016, it is likely to involve both cash and stock. Starwood shareholders will receive 0.92 shares of Marriott stock and $2 in cash for each share of Starwood. Though stock is not always the first choice for investors, in the case of Starwood, shareholders will profit, since other hoteliers have systematically delivered better returns than Starwood, whose limited portfolio has also limited the growth of the company. Whereas Starwood was projected to grow only 2% next year, the estimate for Marriott is more like 8%, making it a sure bet.