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Marriot to Buy Starwood, Creating World's Biggest Hotel Company

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By Jonathan R. Tung, Esq. on November 17, 2015 5:59 AM

Marriott International has just agreed to purchase Starwood Hotels and Resorts Worldwide for $12.2 billion in cash and stock, a move that will create the largest hotel company on the planet.

The merger is likely to come as great relief to Starwood, whose stock has suffered over the last few years due to the changing of CEOs and talk of sale.

We Don't Take Cash

The merger will be completed with $11.9 billion in stock and $340 million in cash: a transaction made almost entirely with the trade of equities. But some market analysts have intimated that the price offered by Marriot did not meet investor expectations. It could also be a potentially good buy for Marriot because Starwood's average share price over the last 12 months has been hovering around the low $80s. At $72.08 per share, the purchase at least has the trimmings of a good one from Marriott's point of few. Hyatt, Marriott's competitor, which had been negotiating with Starwood for months, also decided to up its offer when Marriott outbid it

Pritzkers Lose Out

Apparently, this was one deal where Pritker money could not ensure the family's will. Starwood rejected Hyatt's offer because it preferred Marriott stock instead for valuation reasons and also because of Starwood's wariness of the Pritker family having too much control over governance and management. Ostensibly, the Marriott was chosen as the buyer because of Marriott's more diversified brand portfolio.

Backing Will Cost You

The default clause in the contract terms provides that if either company backs out or pursues a different transaction, either company would owe the other just a mere $400 million.

Does It Pass the Smell Test?

Marriott's Chief Executive Arne Sorenson said that neither Marriott nor Starwood has started the process of anti-trust review, so legal teams have not yet officially given their opinions to the viability of the deal. If everything moves smoothly, the transaction is scheduled to close by mid-2016. Who would care to take bets on any additional mega-mergers before this year is out?

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