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Marriott grabs Starwood to become world's No 1 hotel company: deal shocks Hyatt and the Chinese

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By Noel Young, Correspondent

November 18, 2015 | 5 min read

The last-minute deal by Marriott International to acquire Starwood Hotels & Resorts Worldwide for $12.2 billion, has shocked the world's hospitality business.

World's biggest hotel company

World's biggest hotel company

The combination will create the No. 1 hotel company globally—with more than a million rooms—says the Wall Street Journal. A total of 30 brands are involved - from Starwood’s higher-end W Hotels, St. Regis and Westin brands to Marriott’s limited-service offerings like Courtyard by Marriott and its extended-stay chain Residence Inn.

Starwood, based in Connecticut, had been listening to sales offers for months. Big Chinese companies were considering a bid for the hospitality giant, said the WSJ, quoting people familiar with the matter.

Eventually it came down to Marriott and Hyatt Hotels., with Marriott emerging as the surprise winner. Late last week, Starwood and Hyatt were putting the finishing touches on an agreement between them, according to insiders - then in came Marriott.

Starwood shares fell 3.6% to $72.27—still slightly above the deal price, suggesting some hope that Hyatt or another bidder might still re-emerge, said the WSJ.

Marriott’s shares rose 1.4%, and Hyatt was up 3.4%.

The Journal said Marriott’s deal to buy Starwood was the clearest sign yet that hospitality companies view mass scale as critical to their success "at a time when the Internet is erasing old barriers to global expansion in the lodging business".

Larger hotel companies can negotiate better fees with online travel agents like Expedia and Priceline ’s Booking.com. Rapidly expanding home-rental companies, like Airbnb Inc., are compelling traditional hoteliers to increase their global footprint or risk losing market share to these nimble competitors, said the WSJ. Merger activity may also be heating up as the industry’s long growth spurt shows signs of slowing and companies look to expand through takeovers.

In an interview, Marriott Chief Executive Arne Sorenson said Marriott and Starwood combined account for less than 15% of U.S. hotel rooms, but others said there is significant overlap in major cities that could lead to closer government scrutiny.

In the New York City area, for instance, the two companies combined would control about 25% of the total room count, according to Macquarie Securities Group. In the Washington, D.C., area, Macquarie estimates the number would be even higher.

Both hotel groups are well represented in Western Europe and major cities in China, where antitrust concerns could also emerge, analysts said.

Some analysts said a company with 30 brands is ripe for duplication and that Marriott will have to combine similar brands or eliminate some entirely. Mr. Sorenson said he had no immediate plans to discard any brand, though he noted that there could be “some marginal places where brands are brought together.”

Marriott said Monday it agreed to pay $2 in cash and 0.92 of its own shares for each Starwood share, which would value the hospitality giant at $72.08 a share.

Starwood was in separate talks to sell itself to Hyatt, and the companies were near an agreement last week, according to people familiar with the matter. Hyatt sweetened its bid Friday after being informed Marriott had outbid it, the people said according o the WSJ.

The two hotel groups were offering similar prices, the people said, but Starwood’s board preferred Marriott’s stock to that of Hyatt, which is controlled by the Pritzker family through special shares that give it 75% of the voting power.

The combined Marriott and Starwood will boast what is expected to be the world’s largest loyalty program—a perk that remains an important driver in growing and retaining corporate business. Marriott’s program has about 54 million members and Starwood has about 21 million members.

Sorenson will remain CEO of the combined company and Marriott will increase its board to 14 members by adding three directors from Starwood.

Starwood Chairman Bruce Duncan said the deal is expected to close by middle of next year.

“That doesn’t mean someone couldn’t come in over the top” with a higher bid, Mr. Duncan said. “We are committed to what is best for shareholders.”

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