Marriott International Inc. will buy Starwood Hotels & Resorts Worldwide Inc. for $12.2 billion to create the world’s largest hotel chain with top brands including Sheraton, Ritz Carlton and the Autograph Collection.
The combined company will own or franchise more than 5,500 hotels with 1.1 million rooms worldwide and give Marriott greater presence in markets such as Europe, Latin America and Asia including India and China.
Marriott currently has three-quarters of its rooms in the United States. Starwood, which also owns St. Regis and Aloft hotel brands, gets nearly two-thirds of its revenue from outside the country.
Among the Milwaukee hotels under the Starwood umbrella are Aloft Milwaukee Downtown, Four Point by Sheraton Milwaukee North Shore in Brown Deer and Sheraton Milwaukee Brookfield Hotel. A Westin hotel also has been proposed for downtown.
The local Mariott hotels include Milwaukee Marriott Downtown, the Courtyard Milwaukee Downtown, the Courtyard by Marriott Milwaukee Airport, Milwaukee Mariott West in Waukesha, Residence Inn Milwaukee Downtown and others.
The merger of two major brands into a goliath will have an impact on Milwaukee’s hospitality market, said Greg Hanis, president of Hospitality Marketers International Inc., which has a New Berlin office.
“Starwood and Marriott are two of the larger hotel companies,” he said. “Between the two of them, they have a significant number of rooms, so this would be quite a large merger and it could have a big impact on the hotel industry.”
Merging the two companies would create an unmatched competitor in the hotel space, especially in terms of the number of brands they operate, Hanis said. Prices at the hotels operated by the firm may rise as competition decreases in Milwaukee.
“The consumer is the one who will ultimately experience the impact of that,” he said. “If they take Westin and make it not as competitive with Marriott, pricing and product strategies will change. What people are getting now at the Westin or the Marriott won’t be as competitive. They can take away amenities, thy can change the pricing structure, and that can have a direct impact on the consumer.”
Competitors like The Marcus Corp., which operates The Pfister Hotel, The Intercontinental Milwaukee and the Hilton Milwaukee City Center, will be challenged by the cross-promotional opportunities and frequent traveler perks offered by a major conglomerate like this new firm in the Milwaukee market, Hanis said.
“Now (Marcus) has literally a goliath coming in and (Marriott/Starwood) can maneuver the brand, the pricing, etc. in downtown Milwaukee even more so than they did before,” he said. “How do you compete against that horsepower?”
Starwood shares fell 5.2 percent to $71.07 in premarket trading on Monday, below the offer price of $72.08, indicating investors were unhappy with the offer being at a 4 percent discount to the stock’s Friday close.
Marriott shares fell 1.3 percent to $71.65.
“We have been in the business for a long time but Starwood is more global than Marriott is,” Marriott chief executive Arne Sorenson, who will lead the combined company, told CNBC. “It’s a good thing that we will have more sources (of growth) from around the world.”
Starwood had essentially put itself up for sale in April, when it said it was considering strategic alternatives, taking about 14 percent off its stock up to Friday’s close.
The company, which had a market value of $12.67 billion as of Friday, had reached out to InterContinental Hotels Group Plc, Wyndham Worldwide Corp. and sovereign wealth funds for a possible deal since July, sources had told Reuters.
Starwood’s shareholders will get 0.92 Marriott Class A share and $2 in cash for each share held. They will also get about $7.80 per share from the spinoff of Starwood’s timeshare business and subsequent merger with Interval Leisure Group Inc., announced in February.
Marriott said it expected one-time transaction cost of $100 million-$150 million related to the acquisition, which was expected to add to earnings from the second year after it closes.
After the transaction closes, the company is expected to add three Starwood members to its board, which will expand to 14 members.
The deal is expected to close in mid-2016, the companies said.
Lazard and Citigroup advised Starwood on the deal and Deutsche Bank Securities advised Marriott.
With reporting by Reuters.