Big Hotel Firms Combine -- WSJ

By Craig Karmin 

Marriott International Inc. completed its acquisition of Starwood Hotels & Resorts Worldwide Inc. on Friday, beginning the complex integration process by linking the guest-loyalty programs and pledging to keep all 30 lodging brands.

The $13 billion merger creates the world's largest hotel company with more than 1.1 million rooms and about 5,700 hotels in more than 110 countries.

"We think there are real advantages to size," Marriott Chief Executive Arne Sorenson said in an interview.

Marriott estimates the merger will yield annual cost savings of $250 million. The Bethesda, Md., lodging company is betting that its large size will allow it to negotiate better terms with online travel agents like Expedia Inc. and to convince more travelers to book directly on its website.

The merger combines Marriott brands, including Ritz Carlton, Courtyard and Residence Inn, with W Hotels, Westin, Sheraton and other Starwood brands.

But that size also offers challenges, such as finding ways to differentiate among the 30 brands -- some of which compete against each other -- and merging the two distinct corporate cultures.

Hotel owners tend to view Starwood as the more free-wheeling company in terms of hotel design, marketing and culture. Marriott has a reputation for a more conservative approach and a focus on operations, though it has been trying to change that image recently with more brands aimed at younger travelers.

Meanwhile, many members of Starwood's best-in-class loyalty program have worried that the merger would water down their perks, which include suite upgrades, personal concierge and complimentary champagne.

Marriott said the two loyalty programs would remain distinct for now and participants would be able to transfer points between the two programs, which together comprise 85 million members.

Each would match the other program's gold, platinum and other status. But three Marriott points convert into a single Starwood point, a sign that Marriott values the Starwood loyalty program more highly.

Marriott also has agreed to add three Starwood directors, including its chairman, real-estate executive Bruce Duncan, to the Marriott board.

Mr. Sorenson said that other parts of the integration process, such as combining technology platforms and deciding what offices to close, could take one or more years.

"There's a lot to do," he said.

Stamford, Ct.-based Starwood said in April last year that it was exploring strategic alternatives, a move that opened the door for a sale. Marriott and Starwood announced their plans to merge in November, but an unsolicited offer from China's Anbang Insurance Group Co. earlier this year sparked a tense bidding war. That contest ended in March, when Anbang abruptly withdrew its $14 billion offer with little explanation.

Mr. Sorenson said he thought his rivals would also look to expand their companies through acquisition, but would be pressed to scale up as quickly as Marriott has.

"Companies like Starwood come up for sale only every few decades," he said.

Write to Craig Karmin at [e-mail]

(END) Dow Jones Newswires

September 24, 2016 02:48 ET (06:48 GMT)

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