Marriott International to use equity, cash for $12.2 billion acquisition of Starwood Hotels

By Lisa Kerner

Charlotte, N.C., Nov. 16 – Marriott International, Inc. announced it will acquire Starwood Hotels & Resorts Worldwide, Inc. in a stock-and-cash deal valued at $12.2 billion.

Marriott president and chief executive office Arne Sorenson said there were “pros and cons” to using equity, since using cash “would have been cheaper for us.”

One positive is that Starwood shareholders can participate in the upside. Also, the company is not levering up its balance sheet or taking on incremental risk.

Sorensen made his comments during a conference call on Monday.

Starwood shareholders will receive 0.92 of a share of Marriott class A common stock and $2.00 in cash for each share of Starwood common stock for a total value of $72.08 per Starwood share.

The transaction is expected to close in mid-2016.

Carl Berquist, Marriott’s chief financial officer, said Marriott’s stock will be the “go-to stock” in the hospitality business and called the deal “a game changer.”

One-time transaction costs are expected to be between $100 million and $150 million, and the transaction is expected to be earnings-per-share accretive in the second full year, according to Berquist.

Transition costs, which have yet to be estimated, are expected to be incurred over the next two years.

Berquist said Marriott should be able to return $2.25 billion in dividends and share repurchases to shareholders following the first year of the acquisition, despite the transaction and transition costs.

A $400 million break-up fee is included in the agreement.

Marriott will assume Starwood’s recourse debt at the closing of the transaction. The company remains committed to maintaining an investment-grade credit rating and expects to maintain its 3 times to 3.25 times adjusted debt-to-adjusted EBITDAR target.

Combined, Marriott and Starwood operate or franchise more than 5,500 hotels with 1.1 million rooms worldwide. The combined company's pro forma fee revenue for the 12 months ended Sept. 30 totals more than $2.7 billion.

Marriott is a Bethesda, Md.-based lodging company. Starwood is a Stamford, Conn.-based hotel and leisure company.

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