Marriott's Sorenson offers further color on Starwood deal, integration

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It's still not a done deal, but it is inching ever so closer to being one.

After Marriott International came over the top of Anbang Insurance Group's bid for Starwood Hotels & Resorts Worldwide, an offer that Starwood accepted putting the Bethesda, Md.-based hotel company back in the driver's seat to acquire the company, Arne Sorenson, Marriott's CEO, held a 45-minute call with investors while he was visiting Cuba with President Obama.

Anbang, or any other entity, still has the opportunity to make a bid on Starwood, after Marriott's $13.6-billion bid was accepted. (The deal has already cleared pre-merger antitrust review in the U.S. and Canada; approvals from the EU and China are pending.)

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"We substantially improved the offer and teed up something compelling to shareholders," Sorenson, speaking from Havana, said. "We have the ability to create enormous value. The focus now is on integration."

Which is an enormous task when you think that the combined companies would control 5,700 hotels and more than 1 million rooms spread across 30 brands.

Loyal Combo
One of the bigger points of integration is combining loyalty programs: Marriott Reward and Starwood Preferred Guest. For now, the two will remain separate, but should the deal go through, expected to close mid this year, long-term, the loyalty programs would be combined. Sorenson called the prospects of a combined loyalty platform as one of the more compelling and profound advantages of the merger.

"SPG is powerful," Sorenson said. "They have loyalists who like their brands. But, too often, they do not have a Starwood hotel when they travel. We hope they stay at a Marriott, but not always. By putting these two programs together over time, we will see those SPG guests find something in their network where they can earn points. That gives us greater share of wallet."

Brand Mix
Thirty brands is a lot (it's something Sorenson is often asked about), but Marriott views it as 30 brands positioned against distinct and profitable customer segments. At the luxury level, Marriott already operates the Ritz-Carlton brand, and, according to Sorenson, there are no plans to dissolve the St. Regis brand; rather, grow it. Marriott views St. Regis as a strong brand, but with limited distribution. Sorenson said there is great growth potential for it, especially growing it in Asia.

In regard to W, Marriott said it fills a white space opportunity at a lower tier than Edition.

Sorenson compared Aloft to AC by Marriott, calling a bit more playful. Perhaps most interesting was what Sorenson had to say about Starwood's extended-stay Element brand. "With size and scale, Element could be an interesting alternative in the housing rental services space, like Airbnb and HomeAway," he said.

Meanwhile, the Sheraton brand has recently come under the microscope and gone through a restart. Marriott recognizes this, but thinks under its guidance, it can be improved. "We can bring RevPAR index up," Sorenson said. "Some hotels are holding the brand back and might, over time, have to be deflagged."

Investors on the call tried baiting Sorenson with questions about the merger, particularly if Anbang came back with another offer higher or better than Marriott's, which is still a possibility. Sorenson, however, was careful not to comment. "We aren't going to negotiate in public or speculate," he said. "We think our offer is compelling to shareholders."

While the deal has still not closed, Sorenson believes, in the long-term, a combined company will achieve undeniable success. "We have not gone through Starwood hotel-level P&Ls, but in areas like procurement, we can combine and share the costs. We can drive share to hotels through the loyalty program and Salesforce. Drive share for those hotels and drive top- and bottom-line improvement for owners and franchisees. That will increase fees for us."

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