Coverage: Marriott to buy Starwood Hotels

In a $12.2 billion deal, Marriott agreed to buy Starwood Hotels, cementing Marriott’s position as the world’s largest hotelier.

CNBC had the details behind the deal:

The company, which had a market value of $12.67 billion as of Friday, had reached out to InterContinental Hotels Group Wyndham Worldwideand sovereign wealth funds for a possible deal since July, sources had told Reuters.

Starwood’s shareholders will get 0.92 Marriott Class A share and $2 in cash for each share held. They will also get about $7.80 per share from the spinoff of Starwood’s timeshare business and subsequent merger with Interval Leisure Group announced in February.

Marriott said it expected one-time transaction cost of $100 million-$150 million related to the acquisition, which was expected to add to earnings from the second year after it closes.

After the transaction closes, the company is expected to add three Starwood members to its board, which will expand to 14 members.

The deal is expected to close in mid-2016, the companies said. Lazard and Citigroup advised Starwood on the deal and Deutsche Bank Securities advised Marriott.

Abha Bhattarai of The Washington Post detailed just how big the combined company would be:

Marriott International, the Bethesda-based hotel behemoth, said Monday it has agreed to buy Starwood Hotels & Resorts in a $12.2 billion deal that would create the world’s largest hotel company.

The combined hotelier, to be based in Bethesda, would own or franchise 5,500 properties and be the only company to have more than 1 million hotel rooms. The cash and stock purchase marks the largest hotel deal since the private equity firm Blackstone Group bought Hilton Worldwide for $26 billion in 2007.

“This is a transformative event for Marriott,” Arne M. Sorenson, Marriott’s president and chief executive, said Monday in a briefing with investors. “When we look at Starwood, we see many aspects of its business that complement Marriott.”

Specifically, Sorenson said Marriott was drawn to Starwood’s large international presence, strong rewards program and its popularity among younger travelers. The Stamford, Conn.-based company owns 11 brands, including St. Regis, W, Westin and Sheraton.

“To be successful in today’s lodging space, a wide distribution of brands and hotels across price points is critical,” Adam Aron, Starwood’s chief executive, said during the briefing with investors. “Today, size matters.”

The combined company, which would have 30 brands, 1.1 million rooms and $2.7 billion in annual revenue, would cement Marriott’s lead as the world’s largest hotel company. Hilton Worldwide, based in McLean, would be the second-largest hotelier, with 4,400 properties, 731,000 rooms and $10.5 billion in annual revenue.

Leslie Picker of The New York Times explained how despite the deal’s low premium, Starwood isn’t likely to receive a better offer:

Given the competitive sales process, investors were disappointed by the lower-than-expected premium, and Starwood’s shares fell 3.6 percent on Monday. Marriott’s shares gained 1.4 percent. That is the opposite effect of what traditionally happens after a takeover is announced.

Still, Starwood’s premium was higher than what Blackstone agreed to spend in September on Strategic Hotels — which owns the Four Seasons hotels and resorts in Silicon Valley, Washington and Jackson Hole, Wyo., the Fairmont and Intercontinental hotels in Chicago, and the JW Marriott Essex House Hotel in Manhattan. That $6 billion deal came at a 13 percent premium to the company’s price on July 23, before an article was published about a potential transaction.

It seems unlikely, although possible, that Starwood will get another bidder at this stage. The merger agreement said Starwood would have to pay Marriott a $400 million fee to get out of the deal and did not grant Starwood the ability to shop the offer around.

Mr. Sorenson would remain president and chief executive of Marriott after the transaction closes and the headquarters will continue to be in Bethesda, Md. Marriott’s board of directors will increase to 14, with the addition of three members from Starwood.

Lazard and Citigroup provided financial advice to Starwood, while Deutsche Bank advised Marriott. Cravath, Swaine & Moore served as legal counsel for Starwood and Gibson, Dunn & Crutcher counseled Marriott.