The tutor needs to answer all 5 questions in attachment and must provide the plag report. All answers should be as per the case and data provided in Ms. Excel. I do not need any general answers. Referencing is not applicable.
Microsoft Word - Marriott Starwood V1.docx C o p y r i g h t 2 0 1 5 S t e v e n F e r r a r o - N o p a r t o f t h i s c a s e m a y b e r e p r o d u c e d , s t o r e d i n r e t r i e v a l s y s t e m s , u s e d i n a s p r e a d s h e e t o r t r a n s m i t t e d i n a n y f o r m o r b y a n y m e a n s - e l e c t r o n i c , m e c h a n i c a l , p h o t o c o p y i n g , r e c o r d i n g , o r o t h e r w i s e – w i t h o u t t h e p e r m i s s i o n o f t h e a u t h o r . MarriottInternational’sAcquisitionof StarwoodHotels&Resorts Worldwide InAprilof2015StarwoodHotelsandResortsbeganaprocesstomaximizeshareholder value by considering divestitures, a leveraged recapitalization, acquisitions, or an outright sale of the company. After engaging no fewer than 10 companies about possible mergers or acquisitions, Starwood’s board of directors determined that Marriott,oneoftheearlysuitorswho initiallywithdrewinterest,wasthebestpartner. AnnouncementofMarriott’sacquisitionofStarwoodwasmadepubliconNovember16, 2015. Thiscaseisdevelopedsolelyforthebasisofclassroomdiscussionandisnotintendedto serveasanendorsement,ortoillustrateeffectiveorineffectivemanagement. Fall15 08Fall Marriott International’s Acquisition of Starwood Hotels & Resorts Worldwide 1 Introduction On November 16, 2015, Marriott International, Inc. (MAR) and Starwood Hotels & Resorts Worldwide, Inc. (HOT) announced that the boards of both companieshadunanimouslyagreedtoapprovetheacquisitionofHOTbyMAR.The resulting entity would be the world’s largest hotel company. The combined company’sportfoliowouldincludeMarriott’sstrongpresenceintheluxury,select- service tiers, resorts, and conventions segments as well as Starwood’s leading lifestylebrandsandinternationalfootprint. Under the terms of the agreement, Starwood shareholders would receive 0.92sharesofMARclassAsharesand$2.00 incash foreachHOTcommonshare. The total value of the deal is estimated to be approximately USD $12.2 billion. Separatefromthisdeal,Starwoodshareholderswillreceiveapproximately$7.80for Starwood’s timesharebusiness,whichwillbemerged into IntervalLeisureGroup. Starwoodshareholderswouldownapproximately37%ofthecombinedfirm. The agreementalsorequireseitherfirmtopaytheothera$400millionbreak-upfeeif analternatetransactionispursuedorifoneofthepartiesdeclinestocompletethe deal. ArneSorenson,CEOofMarriottwillremainCEOofthecombinedcompany. Marriottwillincreaseitsboard’ssizebythreetoatotaloffourteen. Starwood(HOT) Starwood Hotels & ResortsWorldwide, Inc., togetherwith its subsidiaries, operatesasahotelandleisurecompanyworldwide.Thecompanyowns,operates, and franchises luxury andupscale full-service hotels, resorts, residences, retreats, select-service hotels, and extended stay hotels under the St. Regis, The Luxury Collection,W,Westin,LeMéridien,Sheraton,FourPoints,Aloft,andElementbrand names. It also develops, owns, and operates vacation ownership resorts; and markets and sells vacationownership interests in the resorts, aswell asprovides financing to customers who purchase such interests. In addition, the company develops, markets, and sells residential units at mixed-use hotel projects. As of October 1, 2015, the company developed, owned, andmanaged retail, office, and industrial properties that included approximately 9 million square feet of commercialspace;hadaportfolioof39hotelstotalingapproximately5,400rooms; and offered property management services to 17 apartment communities. The companywasfoundedin1969andisheadquarteredinStamford,Connecticut.1 1http://finance.yahoo.com/q/pr?s=HOT+Profile Marriott International’s Acquisition of Starwood Hotels & Resorts Worldwide 2 Starwoodbegantheir“assetlight”divestitureprogramin2000.Thegoalof the programwas to transform Starwood from an asset heavy, real estate holding company that owned hotels to a hotel management company that “owned relationships.”TheexpectedresultsfromtheprogramincludedahighROIC,lower capital requirements, highermargins and less cyclical profits. Between2000 and 2014,Starwoodhadtransitionedfromacompanywhereonly17%of itsrevenues werefee-based,toonewhere80%oftherevenueswerefee-based.However,while ROIC andmarginshadbeennoticeablyhigher in 2012, 2013, and2014, revenues hadbeguntotaperoff.Thedeclinewasnoticeableintheanalystcommunityaswell asamongStarwood’speers. In April of 2015, Starwood announced the beginning of a strategic exploration to maximize shareholder value. Robert LaFleur, an analyst at JMP SecuritiesnotedthatStarwood’sSheratonbrandhadbeenstrugglingrecently.“One ofthereasonsStarwoodwentonthisreviewtobeginwithwastheSheratonbrand.“ StarwoodhiredLazardandCititoreviewstrategicalternatives.Thesealternatives included continued divestitures in pursuit of Starwood’s “asset light” strategy, a leveragedrecapitalization,sellingStarwoodoutright,oracquiringormergingwith anothercompany. Between April and August Starwood engaged 10 lodging companies, and investors in lodging companies, in an effort to find the best strategy for going forward.Bidder’spershareoffersrangedbetween$79.00and$86.00.Manyofthe offerswereall cashoffers,but somewerea combinationof cashandstockwhere thestockportionrangedbetween70%and97.50%ofthetotaloffer.Followingthe acquisition announcement, LaFleur noted, “If there’s anyone who can fix [the SheratonBrand],itwouldbeMarriott.Ithinkitwilltakeacoupleofyearsforthese companiestorealizethesesynergiesbroadly.”2 Marriott(MAR) Marriott International, Inc. operates, franchises, and licenses hotels and timeshare properties worldwide. It operates through three segments: North American Full-Service, North American Limited-Service, and International. The company also licenses the development, operation, marketing, sale, and management of vacation ownership and related products under the Marriott VacationClub,GrandResidencesbyMarriott,TheRitz-CarltonDestinationClub,and The Ritz-Carlton Residences brands to the Marriott Vacations Worldwide Corporation. Inaddition, itoperates,markets,anddevelopsresidentialproperties, as well as operates and franchises hotels and resorts; and provides services to home/condominium owner associations. As of December 21, 2015, the company had approximately 4,300 properties in 85 countries and territories. Marriott 2MarriotttoBuyStarwoodHotels,CreatingWorld’sLargestHotelCompany,DealB%K,NewYork Times,November16,2015. Marriott International’s Acquisition of Starwood Hotels & Resorts Worldwide 3 International, Inc. was founded in 1971 and is headquartered in Bethesda, Maryland.3 TheIndustry Rumors had persisted for months that Starwood was talking to multiple potential acquirers; including three Chinese companies, InterContinental Hotels Group,andHyattHotels,asitbeganexploringvariousvaluemaximizingstrategies in April 2015. Marriott was not considered to be among this group after it completed its strategic review in April 2015. Marriott Chief Executive Arne Sorenson stated that they “jumped in and took a quick look at the [Starwood] informationthatwasavailable–andinitiallywerenotveryinterested.” However, overthenextsevenmonthsMarriottbecamemoreandmoreimpressedbywhatit coulddoif itwerebigger.4SizebegantomattermoretoMarriottasitconsidered whathadbeenhappeningintheindustryduringthepasttwoorthreeyears. Sorenson continued “whether you look at what some of the OTAs [online travelagencies]havedoneintheirspace,theAlibabasandtheGooglesoftheworld andwhatthey’redoinginthetravelspace,andthehomesharingspace…watching allofthat,wethoughtstrategicallywecoulddrivebettervalueandbettercompete by being bigger.” The conclusions that bigger is better is driven by the recent success and rapid expansion of home-rental companies like Airbnb Inc., as they force established hoteliers to increase their global footprint or risk losingmarket share to these smaller, more nimble competitors. Another advantage to being a large hotelier is the negotiating leverage size produces with travel agents like PricelineGroup’sBooking.comandExpediaInc. Scalingupintheindustrywasbecomingmoreandmoreimportantasthese other members of the travel and lodging community were becoming larger themselves.5 The Blackstone Group LP had recently completed two large, high profile acquisitions. InMay 2015 they purchased three high-end resorts: the JW MarriottPhoenixDesertRidge,theOrlandoFloridaJWMarriott,theOrlandoFlorida RitzCarlton. OnSeptember8, 2015BlackstoneGroupLPagreed tobuyStrategic Hotels&Resortsforapproximately$4billion,addingluxurypropertiessuchasThe Essex House in Manhattan and the Ritz-Carlton in Half Moon Bay CA. Travel booking agencies were also growing by acquisition. Expedia recently purchased vacation rental site HomeAway for $3.9 billion and Orbitz Worldwide for $1.6 billion.RivalPricelineboughtOpenTablefor$2.6billioninJune2014andKayakin 2012.AnalystsatKellerCapitalindicatedthatthemid-sizedhotelcompanies,such 3http://finance.yahoo.com/q/pr?s=MAR+Profile 4MarriottCEO:WeWere“Compulsive”AboutKeepingStarwoodDealaSecret,Fortune,November 16,2015. 5Hotelstypicallypaybetween10%and25%oftheirroomrevenuetoonlinetravelagents.In2015, approximately17%ofallhotelbookingswereplacedthroughonlinetravelagents. Marriott International’s Acquisition of Starwood Hotels & Resorts Worldwide 4 as Hyatt Hotels, Choice Hotels and Wyndam Worldwide, were likely to either acquire other small and midsized hotels companies to get larger, or become the targetsthemselvesastheindustrygoesthroughaconsolidation.However,private equitygroupswerealsoshowinginterestingettingintothespace. Beyond size, Sorenson felt there was another compelling motive for the acquisition. “I thinkintheDNAofMarriott isbeinganoperatingcompany,andin manyrespectsStarwoodisabrandandmarketingcompany,andifwecankeepthe best of both of those,we end upwith something that’s pretty strong.” However, some analysts indicated that the timing of the deal was really driven by relative stock price performance: Marriott shares had appreciated more than Starwood shares. Moreover, theWall Street Journal reported thatwhileHyatt andMarriott submittedsimilaroffers,Starwood’sboardpreferredMarriott’sstockasacurrency toHyatt’sbecausethePritzkerfamily,throughspecialsharesthatgiveit75%voting power,controlsHyatt.6 ExpectedBenefitsfromtheAcquisition One of the noticeable benefits from the combination of Marriott and Starwoodwasthe lackofoverlappingfootprints,withtheexceptionofa fewlarge cities like New York. Marriott contended that there would be no need to immediatelystartsellingassetsoncetheacquisitionwascompletebeyondsomeof thosethatStarwoodhadalready identified. However,someanalystsbelievedthat withover30combinedbrands,someofthemarelikelytobesold.Themainbrands arefoundintheTable1below. Marriott management listed the following expected benefits from the acquisition:7 § LeveragingOperatingEfficiencies:Marriottexpectstodeliveratleast$200 million inannualcostsavings inthesecondfullyearafterclosing.Thiswill beaccomplishedbyleveragingoperatingandG&Aefficiencies. § Accretive to Earnings: Marriott expects the transaction to be earnings accretive by the second year after themerger, not including the impact of transactionandtransitioncosts.Earningswillbenefitfrompost-transaction assetsales,increasedefficienciesandacceleratedunitgrowth. 6MarriottWinsBattletoBuyStarwood,TheWallStreetJournal,November16,2015. 7http://investor.shareholder.com/mar/releasedetail.cfm?ReleaseID=942791 Marriott International’s Acquisition of Starwood Hotels & Resorts Worldwide 5 Table1:InventoryofStarwoodandMarriottBrands STARWOOD MARRIOTT Brand Hotels Countries Brand Hotels Countries Luxury St. Regis 33 15 Ritz Carlton 99 36 The Luxury Collection 92 30 Bvlguari 4 3 W Hotels 46 20 Edition 4 3 JW Marriott Hotels 80 26 Autograph 106 26 Upper Scale Westin 203 36 Renaissance 166 35 Sheraton 436 71 Delta Hotels & Resorts 37 1 Le Meridien 98 37 Gaylord Hotels 5 1 Marriott Hotels & Resorts 536 55 Select Service Loft 91 15 Courtyards 1079 47 Four Points 193 33 Fairfield Inn & Suites 808 3 Element 14 3 MOXY 8 3 Protea 100 8 Residence Inn 722 9 SpringHill Suites 353 1 TownPlace Suites 290 1 AC Hotels 94 10 § Significant Capital Recycling Program: Marriott expects Starwood to continueitscapitalrecyclingprogram,generatinganestimated$1.5to$2.0 billionofafter-taxproceedsfromthesaleofownedhotelsoverthenexttwo years. The hotels are expected to be sold subject to long-term operating agreements. § Continued Strong Returns to Shareholders: On a pro forma combined basis,MarriottandStarwoodgenerated$2.7billioninfeerevenueinthe12 monthsendingSeptember2015.In2015,Marriottexpectstoreturnatleast $2.25 billion in dividends and share repurchases to shareholders.Marriott believesitcanreturnatleastasmuchinthefirstyearfollowingthemerger. Marriott International’s Acquisition of Starwood Hotels & Resorts Worldwide 6 § AcceleratedGlobalGrowth:MarriottInternationalexpectstoacceleratethe growthofStarwood’sbrands,leveragingMarriott’sworldwidedevelopment organization and owner and franchisee relationships. The combined company will have a broader global footprint, strengthening Marriott’s abilitytoserveguestswherevertheytravel. § LifestyleLeader:Starwood’sfirst-moveradvantageinthelifestylecategory, alongwithMarriott’s broad range of brands in this segment, positions the combinedcompanyasa leader inthe lifestylespace.WithMarriott’sstrong ownerandfranchiseerelationships, thecombinedcompanyexpectsgrowth ofitslifestylebrandstoaccelerate. § World-ClassAssociates:Thiscombinationbringstogethertwoofthemost talentedteamsintheindustry.Together,theywillcombinetheirinnovative ideasandservicecommitmenttodeliverunforgettableguestexperiences. § Leading Loyalty Programs:Marriott Rewards, with 54millionmembers, and Starwood Preferred Guest, with 21 million members, are among the industry’s most-awarded loyalty programs, driving significant repeat business.Theyshouldbeevenstrongerwhenthecompaniesmerge. § OwnerandFranchiseePreference:Thecombinedcompanywillbeableto realizeincreasedefficiencybyleveragingeconomiesofscaleinareassuchas reservations, procurement and shared services. Combined sales expertise and increased account coverage should drive additional customer loyalty, increasingrevenue.Weexpectthattheseenhancedefficienciesandrevenue opportunities should drive improved property-level profitability aswell as greater owner and franchisee preference for the combined company’s brands. § Commitment to Management and Franchising: Marriott remains committed