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Marriott Buys Starwood to Create World’s Largest Hotel Chain

Starwood's Westin Peachtree Plaza, Atlanta, Georgia. Photo by James Good, creative commons, Flickr
Starwood's Westin Peachtree Plaza, Atlanta, Georgia. Photo by James Good

BETHESDA, Md.—Creating the largest hotel chain in the world, Marriott International, Inc. (NASDAQ:MAR) announced Monday that it intends to buy Starwood Hotels & Resorts Worldwide Inc. (NYSE:HOT) for $11.9 billion in stock and $340 million in cash. One expert says that Marriott would be spending its money better on upgrading the condition of its franchisees, while a few antitrust attorneys think regulators will be looking closely at the deal.

The boards of both hotel companies have approved the $12.2 billion deal, which will now go to  shareholders for final approval. They are expected to approve the deal, which Marriott anticipates will give Starwood stock owners a 6 to 20 percent premium in the price of their shares. Marriott's CEO and president Arne Sorenson will be the CEO and president of the new firm, which will be headquartered in Bethesda. Marriott's board will grow from 11 to 14 seats to accommodate members of Starwood's board. 

"We have competed with Starwood for decades and we have also admired them," says J.W. Marriott, Jr., executive chairman and chairman of the board of Marriott International. "I'm excited we will add great new hotels to our system and for the incredible opportunities for Starwood and Marriott associates. I'm delighted to welcome Starwood to the Marriott family."

Stamford, Connecticut-based Starwood is the parent of 11 hotel brands, including Sheraton, Westin, Four Points and Le Meridien. All told some 1,270 hotel or resort properties fly one of the franchisor's hotel flags.

Bethesda-based Marriott is parent to 12 brands, among them Marriott, Ritz-Carlton and Fairfield Inn. Together, Marriott and Starwood will now have 23 brands, 5,600 hotel properties and 1.1 million rooms.

The newly combined hospitality firm now leapfrogs over Hilton Worldwide with its 4,400 properties and 720,000 rooms to be the largest hotel company in the world. Marriott says it expects the larger franchising firm to deliver at least $200 million in annual cost savings by the end of its second year through leveraging economies of scale in areas such as reservations, procurement and shared services. The firm expects the enhanced efficiencies and revenue opportunities to drive improved property-level profitability, as well as better franchisee satisfaction through the combined company's brands.

"This greater scale should offer a wider choice of brands to consumers, improve economics to owners and franchisees, increase unit growth and enhance long-term value to shareholders," says Arne Sorenson about the deal. "We expect to benefit from the best talent from both companies as we position ourselves for the future. I know we'll do great things together as The World's Favorite Travel Company."

Specter of antitrust

Facing a lackluster growth outlook compared to rivals, it was speculated that Starwood could be a buyout match for Wyndham, or even a private equity firm, reported BloombergBusiness. The firm announced at the end of April that it would explore "strategic alternatives," corporate speak for seeking someone to buy it out. By autumn InterContinental and Hyatt were also rumored to be looking into Starwood. In the end it was Marriott that made the deal.

A few antitrust attorneys think the Federal Trade Commission likely will scrutinize the megadeal to make sure the beginnings of a monopoly do not form. The Washington Post reports about the merger:

"There is not a clear path that's been charted by the Federal Trade Commission or by the courts on these deals in the past," said Edward B. Schwartz, a partner at the law firm of Steptoe & Johnson. "I would imagine the FTC is going to want to take a close look at this." The last time two major hotel companies merged, he said, was in 2004 when MGM Mirage purchased Mandalay Resort Group for $7.65 billion. The FTC approved that deal but only after requesting a second round of information.

Better for Marriott to spend its efforts in lifting its franchisees' condition

Business consultant and hotel historian Stanley Turkel thinks that Marriott would do better for its shareholders in the long run by better taking care of the health of its own franchisees. "Instead of adopting the near-monopoly position that the Starwood acquisition foretells, Marriott could surprise the hotel world with the following counter-intuitive actions," says the author of several books about the hotel industry.

  1. Provide airtight territorial protection for franchisees
  2. Allow franchisees to terminate license agreements without payment of liquidated damages if they give 12-month written notice
  3. Eliminate all right-of-first-refusal notices
  4. Eliminate requirement of personal guarantees for franchise owners
  5. Eliminate mandatory preferred vendor programs
  6. Provide independent audit of marketing, advertising and reservation funds
  7. Agree to settle all franchisor/franchisees disputes by litigation, not arbitration
  8. Agree that the choice of venue for all legal disputes shall be in the franchise owner's home state
  9. Empower franchise advisory councils to partner with Marriott to monitor quality standards, required services, purchasing programs, training, technology upgrades, guest discount programs, customer satisfaction tests, public relations programs, local marketing campaigns, etc. "

Turkel summarizes, "What a brilliant campaign it would be for Marriott to win the loyalty and respect of thousands of franchisees."


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Don Sniegowski is editor of Blue MauMau, the daily news journal for franchise & small business owners. Call him at +1 (270) 321-1268, tweet @bluemaumau or email don@bluemaumau.org.