Marriott Completes Acquisition of Starwood

BETHESDA, MD—Marriott International Inc. has completed its acquisition of Starwood Hotels & Resorts Worldwide Inc., creating the world’s largest hotel company. And now that the merger—which has been in the works for almost a year—is complete, questions that have been circulating about the integration can finally be answered.

For starters, the loyalty programs will both continue to exist for the immediate future. However, starting today, the accounts can be linked, with Marriott matching member status across Marriott Rewards (which includes The Ritz-Carlton Rewards) and Starwood Preferred Guest (SPG), enabling members to transfer points between the programs for travel and exclusive experiences. Three Marriott Rewards points will equal one SPG Starpoint.

“When we first looked at the possibility of merging Starwood and Marriott, one of the biggest draws was Starwood’s impressive loyalty program,” said Arne Sorenson, president and CEO of Marriott International, in a call with the media. Between the three programs, he said, “Our loyalty base is without parallel and the programs are best in class.” He noted that no member benefits will change at this time and the long-term plan is to build a program that will include the benefits that members value most. Marriott will launch a microsite later today, www.members.marriott.com, for all members of the combined company’s loyalty programs to learn more about the reciprocal benefits now available, and to link accounts.

Another change as a result of the merger? Effective today, Marriott’s Board of Directors has increased from 11 to 14 members, with the addition of three Starwood board members: 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.

With the transaction now complete, Marriott will operate or franchise more than 5,700 properties and 1.1 million rooms, representing 30 leading brands from the moderate-tier to luxury in over 110 countries. With the completion of this acquisition, Marriott’s distribution has more than doubled in Asia and the Middle East & Africa combined.

“Combining Starwood’s brands with ours better enables Marriott to reach our goal of having the right brand in the right place to serve our loyal guests and welcome new ones,” said Sorenson. “We can now provide a better range of choices for our guests, more opportunities for our associates and greater financial benefits for our owners, franchisees and shareholders.”

Of course, the question on everyone’s mind is when or whether Marriott will cull its brands to eliminate those that are similar. According to Sorenson, the company will not. “The expectations are that we will keep all of these brands and try to grow them,” said Sorenson, citing the loyalty program as a major reason why. “The strength of the loyalty program is driven in significant part by the size of the portfolio and the range of choice that’s offered to loyalty program members. By having 30 brands with options in many markets around the world—whether resort or urban, lifestyle or luxury, or economy—we think that program is stronger. The second reason we will keep these brands is the hotels are owned by third-party real estate investors. Our contracts don’t give us a right to change the brands; they have made deliberate bets with their valuable real estate about which brands they’d like to have. That’s something we intend to continue to respect.”

However, that doesn’t mean there can’t be changes to brands. “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 we can rationalize them with product and surface features that customers, over time, will draw distinctions between those brands,” said Sorenson.

The company also inherited Starwood’s owned portfolio, which Starwood had been in the process of selling. Marriott plans to continue that, as part of its asset-light strategy, and is looking to recycle $1.5-$2 billion in capital over the next one to two years.

According to the company, the benefits of this merger are abundant, enabling the combined company to expand the scope of its distribution and portfolio while deploying its larger scale to realize cost efficiencies in its corporate and property operations. As previously reported, Marriott is confident the company can achieve $250 million in annual corporate cost synergies. Additional synergies at the property level should come in the form of leveraging scale in operations and sharing best practices, according to the company. Combined sales expertise and improved account coverage are expected to provide both enhanced efficiencies and increased revenue opportunities for managed and franchised properties.

Sorenson noted in the call that the technology integration will be an aspect of the merger that takes the longest, but said, “Obviously, we think if we can drive cost efficiencies by combining to one, we will get to one as quickly as we can.”

“These enhanced efficiencies and revenue opportunities should drive improved property-level profitability as well as greater owner and franchisee preference for the combined company’s brands, which will encourage new hotel development,” Sorenson said. “As new travel destinations emerge, Marriott can be counted on to be there.”

One-time transaction costs for the merger are expected to total approximately $140 million. Marriott intends to take the steps necessary to cause Starwood’s outstanding public debt to be pari passu with the outstanding public debt of Marriott International. Marriott remains committed to maintaining an investment grade credit rating and to continue managing the balance sheet prudently after the merger, according to the company.

Before market open today, Starwood’s shares will cease trading on the New York Stock Exchange. As previously announced, Starwood shareholders will receive $21 in cash and 0.80 shares of Marriott International Inc. Class A common stock for each share of Starwood Hotels & Resorts Worldwide Inc. common stock.