Marriott completes Starwood merger

Starwood Merger

Starwood is gone. Long live the new Marriott International.

After counter-offers from a Chinese investment company, lawsuits from hotel owners and delays in the approval process, Marriott has finally completed its 10-month, $13-billion acquisition of Starwood Hotels & Resorts, adding 30 new hotel brands to its portfolio. The company now has more than 5,700 hotels and 1.1 million rooms in over 110 countries. Marriott’s distribution has now more than doubled in Asia and the Middle East & Africa combined.

Breaking news: Marriott International is now the world's largest hotel company https://t.co/rvwPw1pPdu pic.twitter.com/qv2oVI0eN6

The merger was announced just after midnight, and the changes were visible online by Friday morning. Links on Starwood’s homepage now connect to Marriott’s site. Starwood’s news feed is gone, and its former URL now redirects to Marriott’s news site. 

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“It has been a long and productive journey since we announced the acquisition last November,” Marriott International chief Arne Sorenson said in a call to investors and media this morning. “It is my great pleasure to welcome everyone from Starwood who is joining the Marriott family.” 

While combining the two companies on paper might be done, the logistics of uniting the offices and the workers is still being finalized. “Starwood has headquarters in Stamford,” Sorenson said. “They also have an office in Manhattan called Starlabs. We will certainly have people in both of those locations for some period of time—maybe forever. There are also at least some that have already signed on and who will be moving to Bethesda. But we don’t have an overarching count yet.” Co-locating is also an option for corporate employees, he said, and hotel-level workers will remain where they are. 

CEO Arne Sorenson: This will be a transaction we will all look back on and say ‘What a good idea that was.' pic.twitter.com/b1PPUA7zcX

30 Brands

Sorenson acknowledged that the company “probably” doesn't need 30 hotel brands, but he told CNBC that he has no plans to scrap any of them.

“The hotels are owned by third party real estate investors,” he told investors in this morning’s call. “Our contracts don’t give us a right to change the brands that are associated with their hotels, and they have made deliberate bets with their valuable real estate about which brands they’d like to have on their hotels.” Those agreements, he said, would be respected by the company going forward. “We will continue to work with our brand teams that include great leaders from Marriott and Starwood to drive distinctions between those brands and make sure that we can sort of rationalize them with product and surface features that customers over time will understand, draw distinctions between those two brands.” 

Marriott plans to sell hotels in Starwood’s owned portfolio, Sorenson added, and will maintain management contracts. “Over the next couple of years, we’re looking at recycling $1.5 billion to $2 billion of capital,” Leeny Oberg, Marriott CFO, told investors. 

Marriott estimates a costs savings of $250 million annually from the merger, and is betting that its size will allow it to negotiate better terms with online travel agents like Expedia Inc. and to convince more travelers to book directly on its website.

But those numbers are still not enough. “Our reach will keep expanding,” Sorenson wrote in his blog. “Worldwide we have the largest signed new construction pipeline with 333,000 additional rooms in the works.” 

Expanded Loyalty Benefits

Regular guests of each brand, of course, will be concerned about the fate of their loyalty points. For now, Marriott Rewards and Starwood Preferred Guest will remain separate, but can be linked for combined benefits. Members will have their status matched across programs and be able to transfer and redeem points across programs. Members who link their accounts will be able to transfer points at a three-to-one ratio (three Marriott Rewards points = one SPG Starpoint) between the programs for redemption stays or on the Marriott Rewards Experiences Marketplace or SPG’s Moments platform.

Today we became part of @MarriottIntl. Our journey continues. https://t.co/plASMnznP3 pic.twitter.com/a2hEkENVjW

“The earliest that we would combine the two programs will be 2018. You can imagine all of the complexities involved with the respective partners [for each program],” Stephanie Linnartz, Marriott’s EVP and global chief commercial officer, told Travel & Leisure.

Marriott launched a microsite for all members of the combined company’s loyalty programs to learn more about the reciprocal benefits now available and to link accounts.

For the time being, Marriott Rewards will continue to partner with J.P. Morgan Chase for its credit card program and SPG will stick with American Express to offer the Starwood Preferred Guest Card.

Marriott Reveals How the Starwood Merger Will Affect Loyalty Programs

Stock Concerns

While the news of the merger was a sigh of relief for Marriott, it's not doing them much favor so far on Wall Street. As of mid-afternoon on Friday, the hotel company's stock price was down some 2 percent on the Nasdaq.

FindTheCompany | Graphiq

Baird Equity Research said that while the merger provides longer-term qualitative benefits, “time-consuming steps” including asset sales, full integration of loyalty programs and improving customer/developer perception of Aloft, Element, and Sheraton must occur before Marriott can return to its high-ROIC, asset-light business model. “Overall, however, we view the merger as a positive step in Marriott's transformation from a collection of brands to a large-scale booking/distribution platform.”

Investor focus, Baird said, will likely shift to integration risks, which could weigh on sentiment in the near-to-intermediate term even if fundamentals remain stable. “While Starwood's development signings have re-accelerated recently, we believe Marriott must work to improve customer/developer perception of several of Starwood's brands, including Sheraton, which now represents 13 percent of the combined company's system (by room count). Additionally, Marriott will likely address the high cost to build for Starwood's select-service hotels (Aloft and Element) in order to re-engage developers.”

Michael Bellisario, a senior research associate at Baird, noted that Marriott’s stock traded down in the last ten minutes of trading on Thursday as well, and that Friday’s decline could just be a continuation of that. “Investors that owned Starwood stock just got Marriott shares and they may not want to own the shares of the new company now, so they are selling,” he said. 

New Leadership

Marriott’s Board of Directors has increased from 11 to 14 members, with the addition of Bruce Duncan, chairman, president and CEO of First Industrial Realty Trust, Inc., Eric Hippeau, partner, Lerer Hippeau Ventures; and Aylwin Lewis, chairman and CEO of Potbelly Corporation. Hippeau and Lewis are also former Starwood board members. (Full biographies on each of the three new Board members are available at www.Marriott.com/investor.)

 

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