Marriott to Acquire Starwood; Company Will Have Over 1.1 Million Rooms Across 30 Brands

The boards of directors of both Marriott International and Starwood Hotels & Resorts Worldwide have unanimously approved a definitive merger agreement under which the companies will create the world’s largest hotel company.

Combined, the companies operate or franchise more than 5,500 hotels with 1.1 million rooms worldwide. The combined company’s pro forma fee revenue for the 12 months ended 30 September 2015 totals over $2.7 billion.

Under the terms of the agreement, at closing, Starwood shareholders will receive 0.92 shares of Marriott International, Inc. Class A common stock and $2.00 in cash for each share of Starwood common stock.

On a pro forma basis, Starwood shareholders would own approximately 37% of the combined company’s common stock after completion of the merger using fully diluted share counts as of 30 September 2015.

Total consideration to be paid by Marriott totals $12.2 billion consisting of $11.9 billion of Marriott International stock, based on the 20-day VWAP (volume weighted average price) of Marriott stock ending on 13 November 2015, and $340 million of cash, based on approximately 170 million fully diluted Starwood shares outstanding at 30 September 2015.

Based on Marriott’s 20-day VWAP ending 13 November 2015, the merger transaction has a current value of $72.08 per Starwood share, including the $2 cash per share consideration.

Starwood shareholders will separately receive consideration from the spin-off of the Starwood timeshare business and subsequent merger with Interval Leisure Group, which has an estimated value of approximately $1.3 billion to Starwood shareholders or approximately $7.80 per Starwood share, based on the 20-day VWAP of Interval Leisure Group stock ending 13 November 2015. The timeshare transaction should close prior to the Marriott-Starwood merger closing.

After adjusting for the value of consideration to be separately received by Starwood shareholders in the Vistana transaction, the merger consideration represents a premium of approximately 6% over the Starwood stock price using the 20-day VWAP ending 13 November 2015 and a premium of approximately 19% using the 20-day VWAP ending 26 October 2015 (prior to recent acquisition rumors).

Arne Sorenson, President and Chief Executive Officer of Marriott International, said, “The driving force behind this transaction is growth. This is an opportunity to create value by combining the distribution and strengths of Marriott and Starwood, enhancing our competitiveness in a quickly evolving marketplace. This greater scale should offer a wider choice of brands to consumers, improve economics to owners and franchisees, increase unit growth and enhance long-term value to shareholders. Today is the start of an incredible journey for our two companies. We expect to benefit from the best talent from both companies as we position ourselves for the future. I know we’ll do great things together as The World’s Favorite Travel Company.”

Leveraging Operating Efficiencies: Marriott says it expects to deliver at least $200 million in annual cost savings in the second full year after closing. This will be accomplished by leveraging operating and G&A efficiencies.

Accretive to Earnings: Marriott also expects the transaction to be earnings accretive by the second year after the merger, not including the impact of transaction and transition costs. Earnings will benefit from post-transaction asset sales, increased efficiencies and accelerated unit growth.

Significant Capital Recycling Program: Marriott expects Starwood to continue its capital recycling program, generating an estimated $1.5 to $2.0 billion of after-tax proceeds from the sale of owned hotels over the next two years. The hotels are expected to be sold subject to long-term operating agreements.

Continued Strong Returns to Shareholders: On a pro forma combined basis, Marriott and Starwood generated $2.7 billion in fee revenue in the 12 months ending September 2015. In 2015, Marriott expects to return at least $2.25 billion in dividends and share repurchases to shareholders. Marriott says it can return at least as much in the first year following the merger.

Loyalty Programs: Today, Marriott Rewards has 54 million members, and Starwood Preferred Guest has 21 million members.

J.W. Marriott, Jr., Executive Chairman and Chairman of the Board of Marriott International, said, “We have competed with Starwood for decades and we have also admired them. I’m excited we will add great new hotels to our system and for the incredible opportunities for Starwood and Marriott associates. I’m delighted to welcome Starwood to the Marriott family.”

One-time transaction costs for the merger are expected to total approximately $100 to $150 million. Transition costs are expected to be incurred over the next two years.

Marriott will assume Starwood’s recourse debt at the closing of the transaction. Marriott says it remains committed to maintaining an investment grade credit rating and to continue managing the balance sheet prudently after the merger. Marriott expects to maintain our 3.0x to 3.25x adjusted debt to adjusted EBITDAR target.

Arne Sorenson will remain President and Chief Executive Officer of Marriott International following the merger and Marriott’s headquarters will remain in Bethesda, Maryland.

Marriott’s Board of Directors following the closing will increase from 11 to 14 members with the expected addition of three members of the Starwood Board of Directors.

The transaction is subject to Marriott International and Starwood Hotels & Resorts Worldwide shareholder approvals, completion of Starwood’s planned disposition of its timeshare business, regulatory approvals and the satisfaction of other customary closing conditions. Assuming receipt of the necessary approvals, the parties expect the transaction to close in mid-2016.