Marriott Acquisition Created The Largest Global Hotel Chain (NASDAQ:MAR)

If Marriott International’s recently announced $12.2 billion bid for Starwood Hotels and Resorts Worldwide is approved, the merger would create the largest hotel chain in the world. Marriott announced that it would acquire Starwood for $11.9 billion in stock and $340 million in cash. Starwood’s brands include Westin, W and Sheraton. The hotel chain effectively put itself up for sale in late April

The combined company will have more than 5,500 owned or franchised hotels with 1.1 million rooms around the world. The two companies together have logged more than $2.7 billion in fee revenue for the 12 months that ended Sept. 30. The company expects $200 million in annual cost savings in its second full year after closing.

Hyatt Hotels Corporation, InterContinental Hotels Group and a few Chinese companies were also bidding on Starwood. According to people briefed on the negotiations, Hyatt was a competitive bidder almost to the end. Marriott had an offer that was similar to Hyatt’s and Marriott’s stock was perceived to have greater potential, so the Starwood board chose the Marriott deal. It seems unlikely that Starwood will get another bidder at this stage. As part of the agreement, Starwood would have to pay Marriott a $400 million fee to get out of the deal.

The agreement represented a premium of about 6 percent above the average of where Starwood’s stock had traded in the 20 days before the agreement was announced. Given the competitive sales process, investors were expecting a higher premium for the company. Starwood’s shares fell 3.6 percent after the announcement, while Marriott’s shares gained 1.4 percent.

The stronger dollar and increased competition has changed the hotel industry and have made consolidation more attractive. The stocks of Marriott and Starwood have both declined at least 9 percent since the spring. Marriott’s board of directors will increase to 14, including three members from Starwood, after the deal closes.

Lazard and Citigroup provided financial advice to Starwood and Deutsche Bank advised Marriott. Cravath, Swaine & Moore served as legal counsel for Starwood, while Gibson, Dunn & Crutcher counseled Marriott.

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