Hotel owners file lawsuit to block Marriott-Starwood merger

(Marriott Starwood)

Marriott International’s acquisition of Starwood Hotels & Resorts has hit another speed bump: Owners of hotels in two major hub cities have filed a lawsuit claiming that the acquisition would violate their exclusivity agreements.

Cityfront Hotel Associates Limited Partners, which owns the Sheraton Grand Chicago, and Dream Team Hotel Associates, which owns the Westin Times Square in New York, sued Marriott and Starwood in New York state court yesterday, arguing that the merger would damage their business. The lawsuit ultimately aims to block Marriott and Starwood from taking steps to finalize the purchase, valued at $12.9 billion based on Monday’s closing prices. 

The plaintiffs claim in the complaint that through the pending merger, Starwood would violate its contract, which restricts it from owning, franchising, managing or operating “any other hotels within a certain delineated geographical region of Chicago and New York City (with certain specified exceptions).” Starwood’s contracts with Sheraton and Westin contain “radius-restriction clauses,” which are areas of protection that forbid Starwood or its affiliates from owning or operating competing hotels, the court filings state. Because Marriott operates competing properties in both Sheraton and Westin’s areas of protection, those hotels would—allegedly—suffer financial damage should the merger go through.

Sheraton Grand Chicago

A source requesting anonymity at the time claimed that if the merger went through, it would result in significant layoffs. Spokespeople for both Marriott and Starwood declined to comment. 

In spite of the lawsuit, stock prices of both Marriott and Starwood rose on Tuesday, indicating confidence in both companies. Marriott stock increased 1.65 percent to $70.27 in late-afternoon trading on Tuesday, while Starwood shares are up 1.82 percent to $82.74 in afternoon trading.

The case is CityFront Hotel Associates Limited Partnership v. Starwood Hotels & Resorts Worldwide Inc., 652521/2016, New York State Supreme Court, New York County (Manhattan).

Sources: Bloomberg, The Street, Commercial Observer