Who should get Starwood’s brands
 
Who should get Starwood’s brands
03 AUGUST 2015 8:19 AM
Most rumors point to another company acquiring or merging with Starwood Hotels & Resorts. Here’s a better solution: Carve up the company so a number of other hotel companies can scoop up the pieces.
The future of Starwood Hotels & Resorts Worldwide has been one of the most talked-about topics in the hotel industry. With the company in the midst of a review of strategic and financial alternatives, every turn of the rumor mill seems to involve the Connecticut-based company. Companies from China to Europe to the United States are supposedly chasing the deal.
 
I don’t believe one company is going to be the winner in the Starwood sweepstakes.  My instinct tells me there will be multiple winners as the company won’t be sold as one unit. I’m with Barry Sternlicht, the erstwhile leader of Starwood Hotels who oversees the unrelated little REIT called Starwood Capital Group. Sternlicht said during June’s New York University International Hospitality Industry Investment Conference that he thought the price tag for Starwood Hotels & Resorts would be too high for him to seriously consider acquiring it.
 
Meanwhile, current Starwood Hotels interim CEO Adam Aron continues to follow a script that says the company is in the midst of its review process and some of the media reports are right, some of them are wrong. My hunch is that he is fielding calls from multiple suitors and it’s only a matter of time—I suspect it will happen by the end of this year—that the company will be dismantled and parsed out to hunters who are quietly salivating over the prospects.
 
The rumors being bandied about have every company that has positive cash flow eyeballing Starwood Hotels. It sure would be tidy if the latest rumor that the reported merger between top China hotel companies Plateno Group and Jing Jang Hotels will acquire Starwood were true. But that’s too easy. There’s got to be more to it than that, doesn’t there?
 
That’s where Sternlicht comes into play. 
 
Before leaving as Starwood Hotels’ leader 10 years ago, he built a company of extraordinary proportions. He started with the acquisitions of a $120-million REIT based in Phoenix called Starwood Lodging Trust and won a titanic battle against then Hilton Hotels Corporation (prior to it acquiring Promus Hotels Corporation) to buy  ITT Sheraton Corporation for about $1 billion. The tale goes deeper than that as Sternlicht’s shrewd move eventually reshaped the way REITs conducted business, but that’s a story for another day. Following the deal, Sternlicht had the audacity to focus on the bed—he launched Westin’s Heavenly Bed in 1999 and soon after introduced the world to the W brand. Both actions proved to be major trendsetters for the hotel industry.
 
With that as the backdrop, here’s one way to look at the future of Starwood Hotels & Resorts Worldwide. It might be completely wrong, but what’s one more log on the rumor fire?
 
Sternlicht takes luxury: Sternlicht avenges his harsh departure and acquires the W, Luxury Collection, St. Regis and Aloft brands. The first three are easy: Sternlicht likes to play in the luxury sandbox and those brands are upper end to the max. Aloft fits only because during the NYU conference Sternlicht sounded downright ticked off over what the brand had become: “My version of Aloft was a different product than what came out from (Frits van Paasschen’s) administration,” he said at the time. 
 
Westin, Element land in Rockville:  CEO Steve Joyce has longed for an upper-upscale brand to pair with the 5,000 midscale and economy hotels in Choice Hotels International’s system. I have to believe the affable and straight-talking Joyce would be dancing in the streets if he successfully lands Westin for the Rockville, Maryland-based company. Element comes along because it’s joined at the hip with Westin, and the few existing properties might be a nice addition to Choice’s growing Cambria brand.
 
Sheraton goes to China: Frankly, the Sheraton brand is revered in Asia and would be a most suitable acquisition for the Plateno-Jin Jang entity. That acquisition would give the new company a strong foothold in the U.S. and Europe, something it surely desires. By most accounts, Sheraton’s current brand-wide refresh is long overdue and owners might welcome the potential for a cash infusion from a new global player.
 
Four Points heads west: I have to hand it to Greg Mount, who took over as CEO of Red Lion Hotels in January 2014. He said at the time that he was going to expand the company and would give it a presence east of the Mississippi River. He has backed up that mission with action and the company is on the move. Acquiring the 20-year-old Four Points brand and folding it into Red Lion would be a coup for Red Lion’s Mounties. Whether Red Lion would have the financial wherewithal to make the deal is a big question, but if it can, this marriage would be perfect.
 
Le Meridien finds a home in Paris or Minneapolis: It might make more sense for Accor to buy the brand that started in France in 1972, but somehow it just doesn’t seem to be CEO Sebastien Bazin’s style to make a move like this, although it would give Accor a little more presence in the U.S., which it really needs. If Accor passes, the road could lead to Carlson Rezidor Hotel Group. The Minneapolis-based company has the most internationally diverse leadership of all American-based companies, and the upper-upscale Le Meridien would be a great match with the company’s progressive Radisson Blu brand.
 
All of this is speculation. Whatever happens to Starwood is going to happen sooner than later, and a breakup of the company could fetch higher returns for investors because each brand fills a niche for other companies that would love to engage in acquisition talks. If there’s no other reason to think these projections are viable, “returns for investors” are the most common words out of any publicly held company’s CEO.
 
What do you think about these ideas? Let me know in the comments below, shoot me an email at jhigley@hotelnewsnow.com or find me on Twitter @jeffhigley1.
 
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12 Comments

  • PR August 3, 2015 6:07 AM

    Lets stop speculating please...

  • Joseph Fischer August 3, 2015 7:33 AM

    Hi Jeff, I loved your writing . I think splitting and selling brands separately will pay off big time to the shareholders, however, the time it will take to spin off the brands and sell without the distribution and the loyalty - SPG will lower the price. There are brands within STARWOOD portfolio of brands that aren't very attractive - Four Points, Element and to some degree -Aloft . Some other brands have lost their 'shine' and need a big change - Adam Aaron is trying to push this change with Sheraton but even W the brainchild of Barry isn't as special, sexy and unique as it used to be in Barry's days. I think that it makes a lot of sense for the Chinese to buy the whole Starwood holding . Also Abu Dhabi or Qatar wealth funds could be possible candidates. Indian Investors - Tata holdings Group . Eventually there is a possibility ( although rather remote) that SCG will buy Starwood Hotels . Knowing Barry , he can do it with both hands tied-up behind his back . He can create a JV with his former Chinese partners Jin Jiang . His last deal with Jin Jiang was signed in November 2014 and officially closed in March 2015. Other American Private investment/Equity Firms could also be interested . With very low interest rates , hospitality and lodging looks as a very good alternative . Interesting times.

  • RS August 3, 2015 8:17 AM

    This does not make much of sense and would confuse the customers that us multiple Starwood brands for both business and leisure.

  • Anonymous August 3, 2015 8:41 AM

    This is kind of fun to see. Not likely to happen at all, but it is interesting to wonder. RS, I think what he is implying here is that Starwood goes away ... and so would SPG. These other companies would love to have a piece of that loyalty pie.

  • ShawnC August 3, 2015 8:46 AM

    There would no longer be a Starwood program so the confusion goes away because there is no Starwood anymore. Yes these companies would need to "honor" points and levels into their own programs. The upper end travelers would hate it but that is about 1% of the total travelers.

  • Hotel Watcher August 3, 2015 8:53 AM

    Would Starwood's parts fetch more money than the whole? Depends who is buying. After all, remember that airbnb is valued higher than pretty much every hotel company, so who knows what will happen. My money is still on an overseas company from China or the Middle East to overpay for a company that needs a lot of physical updating to its brands. But it would be fun to watch Jeff's speculations come true. Imagine all of these companies fighting over the SPG database!

  • RobertKCole August 3, 2015 11:22 AM

    The unwinding of Starwood will make for a great business school case study some day. My guess is that it will become the poster child for future exit strategies by investors in asset-light hotel groups - regardless if things turn out great or awful. The key question is if the sum is greater than the parts - particularly the impact of SPG. There is no chance that the SPG list will not be sold off with a single brand or devalued by spraying out to buyers of each brand (although each brand may be entitled to its own guest history - maybe...) - one would think that SPG stays with the parent and is only sold to a single buyer acquiring a substantial portion of the brand portfolio. Would love to see the various scenario analyses being worked up. Brand transitions create disruption, complete with collateral damage. The experience of IHG in San Francisco - dropping from 9 to 2 properties provides only one example. Although that was reportedly labor contract related, it is obvious that the challenges of the labor contract outweighed the benefits of a Kimpton affiliation and IHG distribution. My guess is that someone buys a good chunk of it - enough to capture control of SPG, with other non-core brands being left behind or eventually sold off by the new owner. Acquiring the brand portfolio intact to capture SPG will be expensive, especially with most investors understanding that they may be buying near an industry peak. Whatever happens, it's going to get messy, and provide HNN lots of content...

  • Bruce Serlen August 4, 2015 3:16 AM

    Provocative analysis and reporting. In a way, the outcome--if Jeff is right and Starwood gets broken up--is sort of another nail in the coffin of the single-brand hotel company. Take Loews, for example. Long a hold out as a single-brand, Loews recently added a luxury offshoot and a soft brand. Now it could pick up an upscale extended-stay product (Element) or even an upper-end select-service brand (Aloft). La Quinta could also decide it's time to play in the lucrative extended-stay arena (Element again). Even luxury, head-in-the-clouds Four Seasons might be tempted to add an upper-upscale sibling (Westin) or go the high-end soft brand route (Luxury Collection). It's all exciting stuff, Jeff. Like a shopping spree at Harrods.

  • BobSonn August 5, 2015 6:00 AM

    Element and aLoft are such weak limited service brands that there won't be much excitement over buying them. However, Sheraton has such great potential for a huge number of conversions to limited service, that there should be quite a bidding war for it...assuming that there are some OWNED assets in it, & its not made up of mostly mgmt contracts...

  • Anonymous August 5, 2015 6:28 AM

    I suspect that SW never wanted a strategic review - that it was forced by the activist shareholders. I think their valuation of themselves is too high and will take another 6 months to sort out a prospective partner. I empathize with you because you have to write articles, so you need space to fill with content. But people need to realize this for what it really is - speculating. Just like trade rumors in sports. My vote -> grow organic or buy la quinta to fill the select service need. SPG is too valuable.

  • Anon August 11, 2015 6:21 AM

    I still think an IHG/Starwood marriage makes a great deal of sense. They have non-competing brands which fit in nicely and would introduce true Luxury product into the IHG stable and address Starwood's lack of limited service/midscale product. Significant benefit from corporate inversion as well.

  • Barbara Desmond August 11, 2015 12:23 PM

    I started my 11 yrs at Starwood when Barry purchased Sheraton and the creation of Starwood Hotels & Resorts. With Barry's focus on life style design we changed the hotel industry!!!! With Barry's departure and no longer the focus on design myself and many of the original talent left the company. We have watched the decline and the decline and the decline of this once amazing innovative company. I think the only person that can get Starwood back to the amazing company it was and can be again is Barry!!!!!!!

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