Under the terms, Marriott will forward 0.92 share along with $2 in cash for each Starwood share, for a total of $11.9 billion in stock and $340 million in cash. The transaction has a value of $72.08 a Starwood share.
The merger creates a portfolio with more than 5,500 hotels with 1.1 million rooms world-wide, the companies said in a news release. Shares of Marriott declined 2.1% in early trading, while Starwood stock fell 7.8% to $69.17.
In an interview, Marriott Chief Executive Arne Sorenson said his company first became interested in a deal in the spring when Starwood launched a review of its strategic alternatives, including a possible sale or merger. The interest intensified in the second half of October.
“We became more convinced about the advantages of size by combining the two companies together,” Mr. Sorenson said. “We thought that would bring more options for customers and create a bigger loyalty program. We’d have the ability to compete better, invest in technology and stay front and center with customers.”
The combined company will put together a total of 30 brands, though Mr. Sorenson said he thinks the brands will be kept, with “some marginal places where brands are brought together.”
Referring to the overall integration of the two hotel giants, Mr. Sorenson noted that “we’ll take it a step at a time. This is about pulling together two very strong platforms.” Describing complexity of combining the two companies, he noted that “we’ll have our hands full.”
Mr. Sorenson said the companies haven’t started the process of antitrust review yet, but he said Marriott has about 10% of the hotel rooms in the U.S., while Starwood has about 3% to 4%, so the combined company would be less than 15% of the U.S. hotel supply. He noted that in the U.S., the hotel business is a “highly competitive and dispersed industry.”
Mr. Sorenson said he liked Starwood’s marketing and mix of international properties. He noted they were first in the so-called lifestyle space and that the combined company would be “the strongest in the space.”
Historically, Starwood has been a strong performer in the high-end hotel market. The company has expanded overseas faster than its rivals; roughly half of its more than 350,000 rooms are outside the U.S. Its W brand is known for having a stylish, modern edge.
Marriott said it expects the move to add to its earnings by the second year, excluding transaction costs that are expected to total about $100 to $150 million. The deal is expected to close by the middle of 2016.
The agreement with Interval Leisure supplants Starwood’s earlier-announced plan to spin off the timeshare unit. Timeshare businesses were a onetime booming profit generator for hotel companies that petered out during the recession.