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Marriott looks set to become the largest hospitality company in the world after Anbang announced it's walking away from its planned takeover of Starwood Hotels & Resorts. In a statement to CNBC on Thursday, the Chinese insurance giant cited ‘market considerations' for pulling out of the deal, but didn't elaborate with any details.
“We were attracted to the opportunity presented by Starwood because of its high-quality, leading global hotel brands, which met many of our acquisition criteria, including the ability to generate consistent, long-term returns over time,” the consortium said. “However, due to various market considerations, the consortium has determined not to proceed further. We thank the Starwood board, management team and its advisors for their efforts and support throughout this process.”
Shares in both Marriott International and Starwood Worldwide dropped 4% on the reports, a pretty clear indication that investors were hoping for an Anbang takeover.
Marriott has already signaled its intention to merge the loyalty programs, and that means there will have to be give-and-take to bring the two programs into alignment.
The deal could, however, prove a real gain for Marriott Rewards members as Marriott has publically conceded Starwood's superiority in attracting affluent guests with its program. With Anbang pulling out, a Marriott-Starwood merger is almost guaranteed to see an increase in the redemption value of some Marriott Rewards.
It's not yet clear what the merger means for future room prices. Big consolidations get spun as being in the best interests of consumers, but that does not always translate into lower prices.
Marriott has indicated the merger will lead to reduced supply chain costs and volume-bargaining power, reducing operating expenses for the merged company through $250 million in synergies in the first two years.
The extra bargaining power should translate into a more competitive co-branded credit card and reduced costs into better room rates.
However, as a customer and loyalty member, I am always concerned that reduced competition in any industry will eventually raise prices. Consolidation of brands like The Signature Collection and The Autograph Collection appear inevitable, and Marriott has indicated as much.
Chairman of Starwood’s Board, Bruce Duncan, said in a statement “Throughout this process, we have been focused on maximizing stockholder value now and in the future,” and if you look at big mergers in the airline and banking sectors, the consolidation has been for the benefit of shareholders over loyalty members.
So after a roller coaster few weeks, when will we know the Marriott-Starwood merger is a sure thing?
If there are no more eleventh-hour bids, April 8, 2016. That is the date set for a special Starwood stockholder meeting that will vote on whether to accept the offer.
Starwood's Board of Directors is unanimously behind the merger, and it will take a fairy-tale bid from a surprise player to stop the merger going ahead at this point.
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