As the week began this morning, the business world and indeed the Cornell University School of Hotel Administration were hit with the surprise news that Marriott International Inc. has agreed to buy Starwood Hotels and Resorts Worldwide Inc. in a deal valued at $12.2 billion. The deal creates the world’s largest hotel company and concludes months of speculation that began in late April, when it was reported that Starwood had retained Lazard to explore “a full range of strategic and financial options.” On October 28, it had been reported that Hyatt Hotels Corp. was close to finalizing a cash-and-stock bid for Starwood, in addition to previous overtures from multiple Chinese investors. Sameer Godiwala (MSRE/MBA ’17) commented that “this deal is an industry game-changer and signifies further consolidation in a highly competitive space. It will allow Marriott to better compete with both smaller companies such as Hyatt but especially Hilton. This will also and provide opportunities for significant synergies but more importantly will give Marriott a better global footprint, where much of the growth in the industry is now taking place.”
According to both companies, instead of a typical transaction premium, Starwood shareholders will receive 0.92 Marriott Class A shares and $2 in cash for each Starwood share. This works out to $72.08 per share for Starwood, a discount of about 4 percent to the stock’s Friday close. However, the total estimated value of the deal to Starwood investors is $79.88 a share as it includes $7.80 a share for Starwood’s timeshare business. Starwood had previously agreed to spin off and sell its timeshare unit to Interval Leisure Group Inc. in a deal valued at $1.5 billion. That transaction is expected to be completed before Marriott’s purchase of Starwood, according to Monday’s statement. Monday’s deal is the biggest in the lodging industry since the 2007 leveraged buyout of Hilton by The Blackstone Group for $26 billion.
Bethesda, MD-based Marriott International owns an array of hotel brands including the luxury Ritz-Carlton and J.W. Marriott in addition to the signature Marriott. Other brands owned by the company include select-service brands Courtyard by Marriott, Fairfield Inn and SpringHill Suites in addition to the extended stay brands Residence Inn and TownePlace Suites. Stamford, Connecticut-based Starwood owns and operates a number of high-end leisure brands including St. Regis, Sheraton, Westin, W Hotels and Le Meridien. Mid-range brands include Four Points by Sheraton and the stylish aLoft. The deal creates a company that, based on 2014 figures, will own, manage or franchise more than 5,500 properties with over 1.1 million rooms and employ more than 380,000 people. The combined company will have over $19 billion in revenues and $1.2 billion in Net Income.
The deal comes at a time in which hotel companies increasingly seek economies of scale and competitive advantages as they compete with one another and with startups such as Airbnb Inc. This deal confirms that scale matters more than ever; having the most comprehensive geographic footprint, when combined with the power of integrated reservation systems, can drive occupancy and thus pricing power and operating margins.
The deal also combines two companies that are both active benefactors and recruiters at the Cornell School of Hotel Administration. Indeed, several members of Marriott’s Senior Management team are also members of the SHA Dean’s Advisory Board, and the board has had Starwood executives as members in the past. Marriott International has been one of the most consistent recruiters of Hotelies every year for the past four decades. Starwood, despite having only been established two decades ago, has also recruited many SHA graduates and has also partnered with SHA on its contributions to the eCornell online learning platform as well as being Senior Corporate Partner for SHA’s noted Leadership Development Program, which prepares students for careers in the hospitality industry. Finally, the J. Willard and Alice S. Marriott foundation has consistently supported SHA, notably in the late 1980s with the establishment of the J. Willard Marriott Executive Education Center adjacent to the Statler Hotel, and most recently in 2011 with the renovation of the SHA library into the current Nestle Library and the Marriott Student Learning Center.
