Starwood Acquisition Strengthens Marriott's Brand Advantage
We think Marriott paid a fair price for access to Starwood’s strong international presence and higher-end luxury brands, writes Morningstar’s Dan Wasiolek.
Narrow-moat
Marriott is paying $12.2 billion in stock ($11.9 billion) and cash ($300 million) for Starwood, or $72.08 per share. Additionally, Starwood shareholders will get $7.80 per share from Interval for the time-share segment. Including the time-share segment, that values Starwood at roughly 13 times our 2016 enterprise value/EBITDA multiple (Starwood has more than $1 billion in net debt). Marriott expects $200 million in annual cost synergies by leveraging general and administrative and operating costs, and once factoring that in, the offer price appears fair.
Both Starwood and Marriott host industry-leading loyalty networks, and there should be leverage in laying each other's brands over those platforms. Additionally, Marriott has top share in North America (with 10% of existing rooms and 20% of industry pipeline rooms) with attractive select service brands--something Starwood has lacked--while Starwood offers a strong international presence at the higher-end luxury segment, which will complement and enhance Marriott's brand advantage, the primary source of its narrow moat. Marriott plans to sell Starwood's remaining owned portfolio, which it believes can generate $1.5 billion-$2 billion in aftertax proceeds. We also expect Marriott to eventually sell the time-share company, as it doesn't fit Marriott's asset light model.
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