BETHESDA, MD. AND STAMFORD, CONN. — Marriott International (NASDAQ: MAR) has agreed to buy Starwood Hotels & Resorts Worldwide (NYSE: HOT) for $12.2 billion. The acquisition will create the world’s largest hotel company with 30 brands under its belt.
The combined company will tout 1.1 million rooms in more than 5,500 hotels throughout more than 100 countries. The fee revenue for the 12 months that ended Sept. 30 totaled more than $2.7 billion across both companies.
Efficiency, savings and growth are the three main goals behind the merger, according to Marriott. The company expects to deliver at least $200 million in annual cost savings in the second full year after the transaction has closed. It is attempting to accomplish this by leveraging operating and general and administrative (G&A) efficiencies.
Marriott also plans to accelerate Starwood’s growth by leveraging its worldwide development organization, as well as its owner and franchisee relationships.
“The driving force behind this transaction is growth,” says Arne Sorenson, Marriott’s president and CEO. “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.”
Per the agreement, Starwood shareholders will receive 0.92 shares of Marriott International Class A common stock and $2 in cash for each share of Starwood common stock once the transaction closes. Starwood shareholders would own approximately 37 percent of the combined company’s common stock.
Prior to the Marriott transaction, Starwood announced plans to sell its vacation ownership business to Interval Leisure Group. The firm’s shareholders will separately receive consideration from this spinoff and subsequent merger with Interval Leisure Group. This transaction has an estimated value of $1.3 billion to Starwood shareholders, or about $7.80 per Starwood share. The timeshare transaction should be complete prior to the Marriott-Starwood merger closing.
“Our board concluded that a combination with Marriott provides the greatest long-term value for our shareholders and the strongest and most certain path forward for our company,” says Bruce Duncan, Starwood’s chairman of the board of directors. “Starwood shareholders will benefit from ownership in one of the world’s most respected companies, with vast growth potential further enhanced by cost synergies.”
Marriott expects Starwood to continue its capital recycling program, which should generate about $1.5 billion to $2 billion of after-tax proceeds from the sale of owned hotels over the next two years.
Sorenson will remain president and CEO of Marriott International post-merger. The firm’s board of directors will increase from 11 to 14 members, adding three members from the Starwood board.
The transaction is subject to Marriott International and Starwood Hotels & Resorts Worldwide shareholder approvals, the completion of Starwood’s planned disposition of its timeshare business, regulatory approvals and the satisfaction of other customary closing conditions. The companies expect the merger to close in mid-2016.
One-time transaction costs for the merger are estimated to total between $100 million and $150 million incurred over the next two years.
Lazard and Citigroup served as financial advisors to Starwood, while Cravath, Swaine & Moore acted as legal advisor. Deutsche Bank Securities served as financial advisor to Marriott, while Dunn & Crutcher acted as legal advisor.
Bethesda, Md.-based Marriott International owns more than 4,300 properties in 85 countries. The company reported revenues of nearly $14 billion in fiscal year 2014. The company operates and franchises hotels and resorts under 19 brands, including the Ritz-Carlton, Bvlgari, JW Marriott, Renaissance Hotels, Marriott Hotels, Courtyard, Residence Inn, SpringHill Suites, Fairfield Inn & Suites and TownePlace Suites.
Marriott’s stock closed at $72.74 per share on Friday, Nov. 13, down from $77.19 per share one year ago.
Stamford, Conn.-based Starwood Hotels & Resorts Worldwide is an owner, operator and franchisor of hotels, resorts and residences. Its portfolio holds more than 1,270 properties in 100 countries under brands like St. Regis, W ,Westin, Le Meridien and Sheraton.
Starwood’s stock closed at $74.99 per share on Friday, Nov. 13, down from $76.23 per share one year ago.