The Purchase
Marriott International, one of the world’s largest hoteliers, agreed to acquire Starwood Hotels & Resorts Worldwide Inc. for $12.2 billion. To be precise, Marriott is going to shell out $11.9 billion in stock and $340 million in cash. Moreover, Marriott agreed to pay $2, in cash, and 0.92 of its own share for each share of Starwood, effectively valuing Starwood at $72.08 per share.
Investors offered a lukewarm response with the stock falling 3.6% to $72.27. On the other hand, Marriott’s shares rose 1.4%
Marriott 2.0
The emerged Marriott will be the largest hotelier in the world with a combined room count of 1.1 million and property count of 5,500. The deal will give Marriott a control of a total of 30 brands and help it address all segments of the hotel market. For instance, with Starwood’s high-end Westin brand along with Marriott’s mid-end brand Courtyard, the company will be able to effectively target consumers from the entire economic spectrum.
Issues
While it is clear that the Marriott secured a relatively good deal, it would be ignorant to assume that the Marriott has a smooth sailing ride from here.
Antitrust
Given the sheer-magnitude of the two companies, it is natural to ponder whether any antitrust issues will arise. Fortunately, after the acquisition is completed, only 15% of all hotel rooms in the United States will be covered by Marriott.
However, according to the Wall Street Journal and Macquarie Securities Group, the two companies, combined, could control about 25% of hotel rooms in New York City. Furthermore, the two argued that in Washington, D.C. that share could be even higher.
Moreover, such a move might, inadvertently, increases consolidation and allow for new competitors to emerge.
Consolidation
As brought up by Bjorn Hanson, a Professor at Tisch Center for Hospitality, Tourism and Sports Management at New York University, “This causes everybody in the business to look around and say: we don't want to be the smallest”. As a result, this acquisition holds the potential to spew a slew of other acquisitions and consolidate the hotel industry.
As a result of consolidation, consumer choices may be restricted and allow for new entrants to address this issue.
Airbnb
In another light, however, this acquisition can also be seen as a way to combat the rise of Airbnb.
Combined, as mentioned previously, the new Marriott will have a total of about 1.1 million rooms. Airbnb, by itself, has 2 million room listings in 190 countries. Moreover, given that business travelers prefer hotels with greater worldwide coverage, the acquisition could allow the Marriott to effectively attract additional business from this segment of the market, and combat Airbnb’s vast geographical presence.
On a much larger scale, however, by achieving scale through this purchase, Marriott might be favorably positioning itself in the hotel industry by establishing itself as a deeply entrenched and strong player. Effectively, safeguarding itself from the imminent rise of Airbnb.
Hence, what do you monkeys think about this acquisition? Do you think that Marriott should have instead addressed the market that Airbnb is engaged in to better compete against the startup? Or do you think that by acquiring Starwood, Marriott made the right decision?
Why not do this? Your stock price has had a pretty good run up over the last 2 years, you are paying little in cash and you get even greater scale in large markets. Plus, as you noted, it increases their ability to consolidate rewards programs and attract more business travelers.
As far as Airbnb is concerned, How much share have they actually taken? Haven't they more or less just increased the pie? To me, they seem to be the place I go to if I'm looking to rent a place for a week, or a few nights somewhere. If I'm going one night, or two tops, a hotel is probably what i'm going to go with. Am I wrong? I could be, I don't look at hotel financials at all to see if it has had an effect; it just strikes me as different consumers you are going for. I'm sure in some aspects it hurts, such as resort area type properties that hotels own.
In a word?
Airbnb
Don't get the comparisoj between airbnb and business travelers in the post - business travelers aren't locking in airbnb rooms to find a great rate for a couple of days
These people saying that airbnb has impacted the hotel industry know nothing. First of all, RevPar, the biggest financial metric used in the hotel industry is at record highs. The hotel industry is far from hurting. Second, the clientele that airbnb caters to have rarely ever paid a $150 a night to stay at a Marriott. If you look at Airbnb's typical customer, they are far from the average customer that a hotel caters to.
Antitrust? Not really. The hotel industry is still incredibly fragmented. When you travel to a city are you forced to stay at a Marriott, no, you have your choice of Holiday, Hilton, Hyatt, Choice, Wyndham, Best Western, and a ton of other brands. Antitrust only applies when customers are essentially forced into using one product or service. This does not apply here at all since if Marriott was to raise its room rates, people can just flock to other properties.
Experience: My firm owns several hotels, both under the Marriott flag and others as well.
100% agreed regarding Airbnb. Totally different product and target customer. I've stayed in an Airbnb rental a number of times during personal travel (particularly with large groups renting houses), but would never consider booking one over a flagged hotel for work travel.
Hotels are geared to business travelers not vacationers...really our entire travel industry is geared that way. You know when Uber surges the highest Rush hour in bad weather.
NA
My two cents is that Marriott acquires a huge portfolio of Asia Pacific hotels well below current construction costs. Not a hotel expert by any means.
Hotel Merger - Marriott + Starwood. What impacts can we expect? (Originally Posted: 11/16/2015)
Apart from being the largest hotel conglomerate in the world (1 million rooms, 5500 hotels in over 100 countries) how does this merger affect the CRE market and also how it would affect your personal hotel usage going forward?
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