Owners and operators of Marriott- and Starwood-branded hotels were glad to see the near-unanimous approval of the planned merger from the two companies’ respective shareholders.
REPORT FROM THE U.S.—The near-unanimous approval from shareholders of both Marriott International and Starwood Hotels & Resorts Worldwide was a welcome sign for those who own and operate hotels under those two companies’ brands.
Sources said Friday that the deal offers both challenges and opportunities, but the good seems to far outweigh the bad.
“Overall, I think the merger is positive. It has the potential to offer value creation with Marriott Rewards and (Starwood Preferred Guest), OTA negotiations, larger brand options, larger investment in technology and global footprint,” said Mary Beth Cutshall, SVP of acquisitions and business development for Atlanta-based Hospitality Ventures Management Group.
Marriott and Starwood announced Friday morning that each company’s shareholders approved the deal by a wide margin. For Marriott, 97% of present shareholders voted in favor of deal, which amounts to 0.8 shares of Marriott common stock plus $21 cash for each Starwood share of common stock, while 95% of present Starwood shareholders approved.
The deal isn’t a sure thing until it officially closes, but the shareholder vote makes it seem much more likely than a few weeks ago when a consortium led by Beijing-based Anbang Insurance Group seemingly did everything in its power to grab Starwood away from Marriott at the 11th hour.
While the pending merger has plenty of pros, it still creates questions about the future.
“We’ll need to see where Marriott takes the company on many levels,” Cutshall said. “For example, which brands survive, merge with existing brands or stay as-is; how Marriott handles the situation of competing hotels in markets once they’re on the same reservation system, national sales efforts and more.”
She said that until the merger is official, it’s still “business as usual” for the company, which has 10 Marriott-branded hotels in its portfolio and pipeline. The company owns four Marriott-branded hotels and third-party manages two. The company will third-party manage the four in its pipeline.
The pending deal has had an impact on how the company has looked at potential deals over the last few months as well, Cutshall said.
“We have a couple of deals we are currently in brand discussions on, and the merger has had a bearing on the direction we’ve taken those conversations,” she said. “For example, we’ve had to look more specifically at the properties within each franchisor’s (portfolio) to analyze location and potential impact with various service segments. In addition, we’ve had to weigh the timing of the merger with the timing of our projects to make sure there’s no impact, especially not knowing which brands may survive or not.”
Environmental impact is another place Cutshall sees some potentially positive economies of scale.
“I think Marriott has a huge opportunity to make a significant impact on the industry’s carbon footprint when it becomes the largest hotel company in the world,” she said. “It would be great to see them put an intentional stake in the ground on that front.”
In a news release announcing the shareholder votes, Marriott and Starwood officials said the deal must still clear some regulatory hurdles.
The merger already has passed muster with United States and Canadian pre-merger antitrust reviews, and several other jurisdictions have given the deal the green light, the companies said. But similar approvals must be gained in the European Union and China.
Marriott President and CEO Arne Sorenson said as recently as a week ago that he expects European regulators will give the go ahead because Marriott has relatively few properties in that continent.
Starwood must also complete the spinoff of its timeshare business, which is expected to be completed by 30 April.
Spokespeople for each company did not further clarify the steps remaining between the shareholders vote and closing, which is anticipated for mid-year.
Impressions from a Marriott owner
Hospitality Properties Trust President and COO John Murray said he buys the rationale for the merger as laid out by Sorenson.
Because HPT largely focuses on select-service properties and has roughly 125 Marriott hotels in its portfolio, Murray said the loyalty implications from the deal work out in his company’s favor.
“SPG members haven’t had access to the depth of select-service hotels they’ll have now,” he said. “That will be beneficial to HPT because we own a lot of Courtyards. We’re definitely optimistic about that.”
Murray said one of the more long-term concerns could be how certain brands interact with each other now that they’re all under one umbrella. But he said that is a relatively small risk to his business.
“If there’s a concern out there, it’s (brand overlap),” Murray said. “I’m certainly hopeful Marriott isn’t going to build Alofts right next to Courtyards and Elements right next to Residence Inns. But I certainly don’t think that’s going to happen.”
He said Marriott still has a mountain to climb in making Starwood’s brands, particularly Sheraton, more appealing to developers. But the power of Marriott’s machine could make some of Starwood’s brands better investments eventually.
“I think the W hotels have been successful,” Murray said. “And if Aloft and Element become more economical to develop then they would be more attractive and easier for owners to make money.”
He also believes the merger will make the new company much more competitive when it comes to technology issues and online-travel-agency negotiations.
“In this day and age, it’s very challenging to develop the amount of resources you need to IT matters,” Murray said. “I think the combination of Starwood and Marriott provides a scale that enables them to better negotiate with OTAs and to spread costs for technology opportunities.”
Impressions from a Starwood owner
At this point, Pebblebrook Hotel Trust is taking a wait-and-see approach, said Raymond Martz, EVP and CFO at the real estate investment trust. It’s tough to say where things will go for his company, which owns a number of Starwood-branded properties and one Marriott Autograph Collection hotel. But executives at the REIT believe the merger will have a positive effect on their business.
Martz said Pebblebrook has enjoyed a good relationship with Starwood. He said the company has been responsive, a great partner, and creative and flexible.
“I have nothing but good things to say about working with them,” Martz said.
It’s because of that good working relationship that Martz and his Pebblebrook colleagues hope the merger doesn’t change operations much. But he is optimistic based on the positive things he has heard about Marriott and Sorenson.
“Sorenson has done a great job with the corporate culture in Marriott and making them a good group to work with,” he said.
Pebblebrook owns some Westin- and W-branded properties, which he said are the REIT’s immediate concerns. The W brand does seem more autonomous because Marriott doesn’t have anything like it, Martz said.
Though his company doesn’t own any Sheraton hotels, Martz believes Sheraton-branded properties could represent an opportunity for growth under Marriott. The Sheraton brand has been an underperformer, but he’s not blaming Starwood for that. He said the brand has been a “red-headed stepchild” for about 20 years.
While Pebblebrook experienced a similar situation a little more than a year ago when InterContinental Hotel Group bought Kimpton Hotels & Restaurants, Martz said he doesn’t expect this merger to have the same surprises or changes. The players in the two acquisitions are different, he said.
For the industry, the merger will allow for stronger negotiation leverage with all the OTAs as well as other business intermediaries, Martz said.
“You’ll have two large operators who can negotiate with a strong hand with the OTAs, and that’s today’s OTAs and tomorrow’s OTAs,” he said. “Today’s are Expedia and Booking.com. Tomorrow’s are Google and Apple.”