Marriott agrees to buy Starwood in a cash and stock-swap deal for $12.2 billion.
Marriott International, Inc. announced Monday it would buy Starwood Hotels & Resorts Worldwide, Inc. to create the world’s largest hotel company for an estimated $12.2 billion in a combined stock-swap and cash transaction. Meanwhile, shareholder rights litigation firm Rigrodsky & Long, P.A. announced it is investigating the merger for possible breaches of fiduciary duties.
The merged companies will have 1.1 million hotel rooms in over 5,500 hotels in 100 countries. They will operate under 30 brand names including Marriott’s The Ritz-Carlton, Bvlgari, JW Marriott, Renaissance Hotels, Marriott Hotels, Courtyard, Residence Inn, and Fairfield Inn & Suites, and Starwood brands St. Regis, The Luxury Collection, W, Westin, Le Méridien and Sheraton, among others. The deal is expected to close mid-2016.
“The driving force behind this transaction is growth,” said Arne Sorenson, President and Chief Executive Officer of Marriott International, in a press release Monday. “This greater scale should offer a wider choice of brands to consumers, improve economics to owners and franchisees, increase unit growth and enhance long-term value to shareholders.”
Under the deal’s terms, Starwood shareholders will receive 0.92 shares of Marriott Class A common stock and $2 cash for each share of Starwood common stock. On a pro forma basis, Starwood shareholders would own a 37 percent stake in the combined company after the merger’s completion, using fully diluted share counts as of Sept. 30.
Marriott will pay $11.9 billion in Marriott Internal stock based on the 20-day volume weighted average price (VWAP) of Marriott shares ending Nov. 13, at a current value of $72.08 per Starwood share, including the $2 cash per share.
Marriott will pay $340 million in cash. The transaction is based on 170 million fully diluted Starwood share, outstanding as of Sept. 30.
In addition, Starwood shareholders will receive $7.80 a share from Starwood’s spinoff timeshare business and subsequent merger with Interval Leisure Group, valued at an estimated $1.3 billion. The timeshare transaction is expected to close prior to the Marriott-Starwood merger completion.
In recent New York Stock Exchange trading, Starwood shares fell 3.75 percent, or $2.82 per share to $72.18, a decline of 17.98 percent from the stock’s April 29 52-week high of $87.99 per share.
Marriott shares remained virtually unchanged in recent Nasdaq trading, up 0.07 percent, or 5 cents a share to $72.79.
“Our board concluded that a combination with Marriott provides the greatest long-term value for our shareholders and the strongest and most certain path forward for our company,” J.W. Marriott, Jr., Executive Chairman and Chairman of the Board of Marriott International, said in the press release.
The companies expect one-time transaction costs of between $100 million to $150 million. Transition costs expected to be incurred over the next two years are expected to be “meaningful,” but cannot currently be estimated.
Other terms of the deal include Marriott’s assumption of Starwood recourse debts. Sorenson will continue to serve as president and CEO of Marriott International and Marriott’s headquarters will stay in Bethesda, Maryland. When the deal is completed, Marriott expects to increase its board of directors from 11 to 14 members, which will include three members from Starwood’s board.
Shortly after the joint announcement, Rigrodsky & Long issued a press release which said it will investigate potential legal claims against the board of directors of Starwood regarding possible breaches of fiduciary duties and other violations of law related to its agreement to be acquired by Marriott.
“The investigation concerns whether Starwood’s board of directors failed to adequately shop the Company and obtain the best possible value for Starwood’s shareholders before entering into an agreement with Marriott,” Rigrodsky & Long said in the press release. “According to Yahoo! Finance, at least one analyst has issued a price target for Starwood stock at $96.00 per share.”
Rigrodsky & Long, P.A., with offices in Wilmington, Delaware and Garden City, New York, prosecutes securities class, derivative and direct actions, shareholder rights litigation and corporate governance litigation, on behalf of shareholders in states and federal courts throughout the United States.
According to The Wall Street Journal, Starwood, in hopes of fending off potential lawsuits, also announced Monday changes to its bylaws that set Maryland state court as the only place in which stockholders can sue the hotelier.
Lazard and Citigroup are Starwood’s financial advisors and Deutsche Bank Securities is the financial advisor to Marriott. Cravath, Swaine & Moore is Starwood’s legal counsel and Gibson, Dunn & Crutcher is Marriott’s.
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