Starwood CEO on merger: "We were not a company in trouble"

When Adam Aron left Starwood Hotels & Resorts Worldwide as interim CEO in December to take the same role at AMC, Starwood named its then CFO, Tom Mangas, as CEO of the company. 

He was taking the helm during a very important time for the company: its impending merger with Marriott International. As Bruce Duncan, chairman of Starwood's board put it, "[Tom] will continue to to oversee the completion of our combination with Marriott."

How he does that will be to continue to drive growth for the company's brands, and therefore further value for its owners.

Mangas sat down with Hotel Management to discuss those topics, why he believes the sale to Marriott had nothing to do with a company in need to be acquired out of trouble and why gaining a foothold in the upscale segment was one of the key reasons for the merger.

Hotel Management: You were named CEO in December and the merger with Marriott is expected to close sometime in the middle of this year. What's the end game for Starwood? What will the company look like in the aftermath?
Tom Mangas: Our brands and capabilities remain intact and strong, and will be a vibrant part of the new company. The focus now until the deal closes is to keep innovating the brands, drive the pipeline and win in the market place, so when the merger happens, there will be a strong company that will continue on and drive a guest experience that is equal to or better, drive shareholder returns and accelerate the pipeline as a combined company.

HM: What is your role post merger? Is this a lame-duck period for you?
TM: This was a battlefield promotion, and I am humble that the board gave me the opportunity in this unusual time between the period of the announcement and then getting it done. My focus is on wining in the market place and driving the integration with Marriott. It's not a typical CEO role. 

HM: What have your discussions been like with Arne Sorenson, CEO of Marriott International? 
TM: Arne and I have a regular dialogue. We just spoke while he as at Davos about how to progress with the closure of the deal, and then the organizational design. We can't do integration execution now so we are in planning mode, and to ensure that the DNA of Starwood and talent transfers over.

HM: Starwood has such powerful brands, what will be the process of folding them into Starwood and will the Starwood name be dropped?
TM: The Starwood name likely doesn’t have a long life. Marriott International will be the corporate name. This is a transfer of brands, intellectual property, organizational DNA and other and capabilities—the loyalty program and all the benefits with it. While the name probably doesn’t transfer, all that made Starwood does, which is why Marriott paid such a significant premium for the company. 

HM: By all accounts, Starwood had a record 2015. Was this a company in need of a rescue?
TM: We are pleased with the reacceleration of signings and room growth. In 2015, we drove results, launched Tribute Collection, simplified deal-making and streamlined the organization for faster decision-making. That doesn’t take away the merits of the combination, but this was not a company in trouble—through review, we concluded we wanted to be bigger in the upscale market. And there are significant cost efficiencies achieved in putting two great companies together. Better value for owners and guests.

HM: Where is the strongest growth for Starwood's brands and what brands?
TM: We had tremendous growth across all divisions. The Americas, relative to the prior year, had the greatest rate of growth—43-percent growth in signings. EMEA and APAC are strong, too, despite a wobbly macroeconomic picture. Aloft is one of those engines of growth—up 60-percent plus in 2015 in signings. The pipeline is 100 hotels strong, in addition to 100 open. The brand has global potential and was one of reasons Marriott wanted to buy us. We create lifestyle brands that speak to guests, like millennials.

HM: In August 2015, Starwood announced the tiering of the Sheraton brand with a Grand designation. How has that gone over with owners and developers?
TM: It was a great signing year for Sheraton—43 percent more deals for Sheraton last year. Owners like we are breathing life back into the brand, and understand the Grand tiering. Some owners are rethinking their next capital investment so they can reach Grand status. 

HM: As a combined company with Marriott, what can you do together that you couldn’t do on your own?
TM: It's a win for our guests, and will be able to provide more points of distribution and more hotels where we don’t have hotels. We will also be more efficient in how we spend money. Take revenue-management spending: Now we only have to do it once and redeploy costs toward more marketing, for example, resulting in higher occupancy and higher rates. So there are cost synergies. Also, we knew our guests stay at upscale properties, and we didn’t have enough. Now we will have tremendous presence.

HM: How is the merger a play against the OTAs and Airbnb? 
TM: Scale matters in this business and it is just as important to compete against other hotel companies as it is intermediaries. This was not a reason to do the deal, but is an interesting trend in the marketplace: more scale, more presence, better positioned to win.

HM: Would you ever list inventory on Airbnb?
TM: I don’t know about that. Airbnb is not impacting our business as people might fear. Airbnb has work to do to bring more legitimacy before hotel companies consider diving into it as an alternative distribution point.

HM: When the acquisition was announced, SPG members cried foul. Allay their fears.
TM: We heard them loud and clear. The blogosphere lit up with concerns. What has made Starwood so valuable is its brands and loyalty program. We are confident that Marriott would approach it with a due-no-harm approach. We do not want to alienate our most valuable members, who drive about 50 percent of occupancy. But, because of antitrust reasons, we haven't been able to talk about how to put these programs together, so, unfortunately, it has created a bit of a communication vacuum. People want to know, but it's an area we can't talk about or collaborate on yet, as we still need to compete. SPG won't switch over on day one. It will need to take longer. Marriott needs to learn about the special sauce. 

HM: Describe Adam Aron’s leadership during the process.
TM: Adam was a great catalyst for change. We weren't delivering on the results owners and shareholders expected. He brought a sense of urgency and innovation, like the Sheraton tiering and simplifying our deal-making to enable faster signings. His fingerprints are on the great 2015 results.

HM: During the closing, can other companies make a play for Starwood and have any?
TM: They can. Until the affirmative shareholder vote, someone or something can make an offer over the top. In these types of processes, however, if there is an announced deal, anyone who comes over the top gets quite public with it.