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Marriott-Starwood Merger Deal Clears Final Regulatory Hurdle

Zacks

Marriott International, Inc. MAR and Starwood Hotels and Resorts Worldwide HOT have declared that the Chinese regulatory agency (“MOFCOM”) has granted an antitrust clearance to their pending merger. Following the development, shares of both the companies rallied over 2% in yesterday’s trading session.

Notably, this was the last regulatory approval required to complete the merger. Subject to the remaining customary closing conditions, both the companies expect the transaction to close before the market opens on Sep 23. Upon completion, Marriott will congeal its position as the world's largest hotel company.

Interestingly, Marriott and Starwood had earlier received the green signal from European Union and antitrust regulators in the United States, Canada, Saudi Arabia, Mexico and other regions.

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Details

Last November, Marriot inked a definitive merger to purchase Starwood. Per the deal, Starwood’s shareholders will receive 0.8 shares of Marriott along with $21.00 in cash for each share they hold.

In addition, they will receive a separate consideration from the spin-off of the Satrwood’s timeshare business – Vistana Signature Experiences – which was acquired by Interval Leisure Group, Inc this May.

Meanwhile, stockholders of both the companies approved the proposed acquisition at their individual shareholders meet in Apr 2016. While 97% of Marriott’s shareholders voted in favor of the proposal, 95% of Starwood stockholders approved the merger.

On completion, the combined entity would operate or franchise about 5,700 hotels with 1.1 million rooms globally, bringing together 30 brands catering to all lodging segments. The deal would also expand Marriott’s reach in markets such as Europe and Latin America.

Our Take

We note that Marriott’s move to buy Starwood shows that the hospitality industry thrives on such deals at a time when online booking is gaining importance in the lodging business. Larger hotel companies, boasting economies of scale, can bargain with online travel agents like Expedia Inc. EXPE, TripAdvisor TRIP and The Priceline Group’s Booking.com for better fees.

Moreover, Starwood’s acquisition would also aid Marriott in better competing with home sharing companies like Airbnb, Inc., as they have made inroads into the industry and are grabbing share from established players, courtesy of lower overhead costs and lesser regulations than what hotel companies have to comply with.

Starwood currently has a Zacks Rank #4 (Sell) while Marriott carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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