THE global hotel industry wakes up to a behemoth – 1.1 million rooms, 5,500 hotels and 30 brands as a result of Marriott International gobbling up Starwood Hotels & Resorts – and the question on many people’s minds is, do we need this?
Move aside smaller globals like Hyatt Hotels Corporation and InterContinental Hotels Group, or rich China hotel groups with richer ambitions like Jin Jiang Hotels or Wanda Hotel Group, all of which have been speculated to takeover Starwood. Marriott caught a lot of people by surprise as it sneaked up stealthily on its rival and nabbed it for US$12.2 billion, consisting of US$11.9 billion in Marriott stock and US$340 million in cash.
Marriott president and CEO Arne Sorenson said during a conference call yesterday: “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.”
Owners and owner representatives, respected hotel brokers and consultants, and travel agencies in Asia-Pacific interviewed are not so sure at this point.
Robert Hecker, managing director-Pacific Asia at Horwath HTL, said: “I was figuring one of the Chinese contenders would make the best offer. The industry didn’t really need a new ‘largest’ hotel company like this, whereas Starwood seemed a perfect way for a new owner to enter the global hotel market.
“There’s a lot of brand positioning overlap between the two, so expect a lot of shaking up in terms of reflags (consolidation). It definitely makes for a massive global player, but not so clear on what it means for growth for the merged companies other than probably a lot of expense savings via the consolidation.
“So a net gain for cash flow, but not much gain for consumers. May even be a backlash with developers as it eliminates one company option they use to have and when developers are increasingly looking for gaps/unique positioning in markets, they may prefer to seek it with smaller scale players.”
An owner’s representative agreed, scoffing at a letter sent by Starwood CEO on an interim basis, Adam Aron, as “spin”. “He makes it sound like a merger, but it isn’t…Note that the disclaimer is longer than the letter,” said the source.
Owners are generally worried about brands integration and increased competition – as it is, some claim they compete even with other brands within family, what more being in an extended portfolio of 30 brands – about being just a number out of 5,500 hotels, about the disruption to GMs and associates this will cause in the months ahead when Marriott starts digesting the Starwood pie and spit out what it finds unpalatable.
In the letter sent yesterday to the ‘Starwood Owner’, Aron said the deal was expected to close by mid-year 2016, adding: “Today is the first day of long journey and there is still much to sort out.”
“Until then, Starwood and Marriott will continue to operate business as usual as two separate companies. Our general managers and hotel associates will remain focused on what matters most, taking great care of our guests and delivering strong returns for you,” he assured.
When asked for an owner’s view on the pros and cons of the consolidation, Sunny Bajaj, managing director of Amburaya Hotels & Resorts who owns, among others, W Samui, said while there were obvious cost-savings and synergies the two giants could exploit within their own corporate structure, the benefits to owners remained to be seen. And while uncertainties in the last several months have cleared up for Starwood, new uncertainties on changes within Starwood and its programmes such as SPG have emerged. “Will make for a few nervous people,” Bajaj said.
The best outcome for him if the new combined entity used newfound synergies to benefit all hotels’ top and bottomline, including “using the power of the combined size to negotiate OTA commissions”.
Contacted, Stephen Ho, Starwood’s president Asia-Pacific, also assured owners: “We’re excited to join forces together with Marriott International to create the world’s largest hotel company.
“Together with Marriott, we gain unprecedented scale, providing enhanced value and economic advantages for owners, more efficient deployment of centralised service funds plus greater ability to invest in systems that drive profitability for owners.
“Owners and our customers will also benefit from the strength of the combined loyalty programmes, and a larger worldwide sales force that will drive increased revenues.”
During the Monday conference call, Sorenson said while efficiencies would be considered, Marriott planned on keeping and growing all of the 30 brands it would have in its stable.
Sorenson will remain president and CEO of Marriott 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.
In a press statement, here are other expectations listed by Marriott for the near term:
- Marriott also expects to deliver at least US$200 million in annual cost savings in the second full year after closing. This will be accomplished by leveraging operating and G&A efficiencies.
- Marriott 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.
- Marriott expects Starwood to continue its effort to sell assets, generating an estimated US$1.5 to $2.0 billion of after-tax proceeds over the next two years.
- In 2015, Marriott expects to return at least US$2.25 billion in dividends and share repurchases to shareholders. Marriott believes it can return at least as much in the first year following the merger.
- Marriott expects to accelerate the growth of Starwood’s brands, leveraging Marriott’s worldwide development organisation and owner and franchisee relationships. The combined company will have a broader global footprint, strengthening Marriott’s ability to serve guests wherever they travel.
- Marriott will immediately leverage the 54 million members of its Marriott Rewards and 21 million members of Starwood Preferred Guest to drive even further repeat business.
- The combined company will be able to realise increased efficiency by leveraging economies of scale in areas such as reservations, procurement and shared services. Combined sales expertise and increased account coverage should drive additional customer loyalty, increasing revenue.
- Marriott expects that 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.
- Marriott remains committed to its management and franchise strategy, minimising capital investment in the business to generate attractive shareholder returns.
A triumphant 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.”
– More comments tomorrow