Marriott Books Starwood’s Rooms and Marketing Finesse
Marriott Books Starwood’s Rooms and Marketing Finesse
MediaPost.com
11/17/15
Marriott Books Starwood’s Rooms and Marketing Finesse
By Thom Forbes
Marriott International’s surprise $12.2 billion deal for Starwood Hotels & Resorts Worldwide yesterday puts together 30 brands and 1.1 million rooms in more than 100 countries together to form the world’s largest hotelier. The combination hopes to forestall upstarts such as Airbnb that operate on a different business model and were just a blip on the competitive landscape only a few years ago.
“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,” says Marriott president and CEO Arne Sorenson in a statement announcing the deal. “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.”
Sorenson tells Fortune’s Leigh Gallagher that beyond size, the companies are complementary in their strengths: “I think in the DNA of Marriott is being an operating company, and in many respects Starwood is a brand and marketing company, and if we can keep the best of both of those, we end up with something that’s pretty strong.”
“On CNBC, Sorenson said that combining the two companies will save $200 million annually,” writes Bourree Lam for The Atlantic. “Moreover, the two companies will have more variety in locations and price points — an aspect that might be important in luring business travelers away from Airbnb.”
Starwood brands are St. Regis, The Luxury Collection, W, Westin, Le Méridien, Sheraton, Four Points by Sheraton, Aloft, Element and Tribute Portfolio. Marriott’s brands, besides multiple variations on its namesake, include The Ritz-Carlton, Renaissance Inn, Fairfield Inn, TownePlace Suites and SpringHill Suites.
“A number of companies, including Chicago-based Hyatt Hotels and Resorts and a few China-based operations, had been courting Starwood, according to news media reports, which sent out signals in April that it would be open to a sale soon after its longtime CEO Frits van Paasschen resigned,” reports Nancy Trejos in USA Today.
“Marriott won out because of the strength of its upscale brands and its sheer size, said Bruce Duncan, chairman of Starwood’s board, during a call with analysts on Monday. Starwood had considered buying another company, selling or continuing on its own, he said,” Trejos writes.
But the New York Times’ Leslie Picker points out that the share price of both of Marriott and Starwood have declined at least 9% since the latter announced it was for sale, reversing Sorenson’s stated sentiment that a deal would be “inconsistent with its previous acquisition strategy.” Plus, “trends like the stronger dollar and competition from the room-sharing start-up Airbnb have made consolidation more attractive.”
Sorenson, who will lead the combined companies, tells the Wall Street Journal that he “liked Starwood’s marketing and mix of international properties and noted the combined company will be the ‘strongest’ in the lifestyle space,” writes Nathalie Tadena.
“Starwood has been really successful at engaging younger business travelers,” James Fox, CEO of Red Peak Branding, tells Tadena, pointing to its proficiency in social media.
“The hashtag for Starwood’s preferred guest program, #SPGlife, is mentioned in more than 55,000 posts on Instagram, while the hashtag for Marriott’s loyalty program, #MarriottRewards, appears in just over 3,000 posts on Instagram,” Tadena writes.
Speaking of which, members of Starwood’s popular SPG program who are wondering what will happen to their points have nothing to worry about, reports Halah Touryalai for Forbes.
“Late check-outs and readily available suite upgrades have helped Starwood maintain a loyal SPG membership base — one that Sorenson says attracted Marriott to Starwood in the first place,” she reports. In fact, SPG and Marriott Rewards “are both extraordinarily powerful programs and we will make them more powerful and relevant,” according to Sorenson.
“Marriott’s size and breadth after the acquisition could prompt other hotel companies, such as Intercontinental Hotel Group and Hilton Worldwide, to consider joining forces with smaller operators to avoid being outpaced,” observes Hugo Martin in the Los Angeles Times.
“It will spur all the others to at least talk about mergers,” hotel consultant Alan Reay of Atlas Hospitality Group tells him.
Indeed, the details of the deal may spur others — “Hyatt, Hilton or the Chinese companies that were previously circling — to make a counter offer, suggests Jeffrey Goldfarb for Reuters’ Breakingviews.
“Marriott is paying more in premium than is justified by its stated savings. Starwood investors, meanwhile, have only a fairly stingy premium to fall back on. … There may also be pushback from hedge funds that have invested in Starwood,” Goldfarb writes.
Until and unless that happens, the two companies expect the deal to close in mid-2016 after shareholder and regulatory approval and Starwood’s planned sale of its timeshare business to Interval Leisure Group.
