Marriott International, which operates over 4,000 properties globally, said on Monday it will buy Starwood Hotels & Resorts in a $12.2 billion (£8 billion) cash and stock deal.
The move, already approved by boards of directors of both companies, will create the world's-largest hotel company, incorporating Starwood's international list of properties with luxury service and accommodations offered by Marriott.
The combined company will include the Sheraton, W Hotels and Ritz-Carlton brands and will have more than 5,500 hotels, with more than one million rooms.
As per the terms of the deal, Starwood's shares are valued at $79.88 each, with its investors receiving 0.92 Marriott shares and $2 in cash for each share of Starwood. Marriott will pay $11.9 billion in its own stock and $340 million in cash.
"The driving force behind this transaction is growth. This is an opportunity to create value by combining the distribution and strengths of Marriott and Starwood, enhancing our competitiveness in a quickly evolving marketplace,” Arne Sorenson, president and chief executive officer of Marriott International, said.
Sorenson hopes that the deal will offer a wider choice of brands to consumers, improve economics to owners and franchisees, increase unit growth and enhance long-term value to shareholders.
Marriott International, which is one of the oldest hotel brands in the world, operates 4,300 properties in 85 countries. It reported revenues of nearly $14 billion in fiscal year 2014. The company operates and franchises hotels and licenses vacation ownership resorts under 19 brands, including The Ritz-Carlton, JW Marriott and Courtyard that are operational in India too.
"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,” Bruce Duncan, chairman of the board of directors of Starwood Hotels & Resorts Worldwide, added.
Starwood runs more than 1,270 properties in some 100 countries and some of its brands in India include Le Meridien, Sheraton, Four Points by Sheraton and Westin, among others.
One-time transaction costs for the merger are expected to total over $100-150 million. Transition costs are expected to be incurred over the next two years.
Marriott expects to deliver at least $200 million in annual cost savings in the second full year after closing and said it expects the transaction to be earnings accretive by the second year after the merger, not including the impact of transaction and transition costs. Earnings will benefit from post-transaction asset sales, increased efficiencies and accelerated unit growth.
Assuming receipt of the necessary approvals, the parties expect the transaction to close in mid-2016.
Arne Sorenson will remain president and CEO of Marriott International following the merger and Marriott's headquarters will remain in Bethesda, Maryland in the US. Following the closing, the size of Marriott's board will increase from 11 to 14 members with the expected addition of three directors of Starwood.
Lazard and Citigroup are serving as financial advisors to Starwood Hotels & Resorts Worldwide and Deutsche Bank Securities is the financial advisor to Marriott International. Cravath, Swaine & Moore is serving as legal counsel to Starwood Hotels & Resorts Worldwide and Gibson, Dunn & Crutcher is serving as legal counsel to Marriott International on the transaction.
