Marriot International Inc. has agreed to purchase Starwood Hotels and Resorts Worldwide Inc. for 12.2 billion dollars.
The sale will make Marriot the largest hotel company in the world, with over five-thousand hotels, over one-million rooms, thirty brands, and 2.7 billion dollars in revenue.
Up until agreeing to the deal with Marriot, Starwood had been fielding offers from many different suitors, including some of the bigger international companies from across the world. Eventually it boiled down to two players: Marriot, and Hyatt Hotels Corp., with Hyatt and Starwood close to reaching an agreement late last week.
However, it was Marriot that emerged as the victor, an outcome that was met with surprise as well as skepticism, as Starwood shares fell 3.6 percent to 72.27 dollars, which was still above the deal price, and indicated there was hope Hyatt or another bidder would re-emerge.
The deal between Marriot and Starwood is a clear indication that hotel companies are putting more emphasis on mass scale. Which makes sense given that larger companies can entice more travelers to make online reservations for their resorts by offering better deals with online travel agents such as Expedia, and Redtag.
Despite the positive aspects, scale also has some drawbacks. Since the companies combine for over five-thousand hotels, and one-million rooms, there is more opportunities for overlap, and potential anti-trust issues.
Marriot Chief Executive, Arne Sorenson recently said in an interview that together Marriot and Starwood make up less than fifteen percent of US hotel rooms, but there is significant overlap in large cities. New York is an example where Marriot and Starwood combine for twenty-five percent of all hotel rooms, and this could lead to higher government scrutiny.
Some analysts have also said that having so many brands Marriot may need to combine similar brands or remove some entirely. However, Sorenson has said that presently there are no plans to remove any brands.
Marriot has agreed to pay 11.9 billion in stock, and the rest in cash, with the hope of closing the acquisition by 2016.
