1

Consolidation in the Hotel Industry: A Study on Marriott

International acquiring Starwood Hotels & Resorts Worldwide

A Project Report

Submitted by:

Harshita Tibrewal

In partial fulfilment for the award of degree of

Bachelors in Business Administration

Under
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SUPERVISOR’S CERTIFICATE

This is to certify that Ms. Harshita Tibrewal a student of B.B.A. Honours in Finance in the
business of Shri Shikshayatan College under the University of Calcutta has worked under my
supervision and guidance for her Project Work and prepared a Project Report with the title
CONSOLIDATION IN THE HOTEL INDUSTRY: A STUDY ON MARRIOTT
INTERNATIONAL ACQUIRING STARWOOD HOTELS & RESORTS WORLDWIDE
which she is submitting, is her genuine and original work to the best of my knowledge.

Signature:

Designation: Assistant Professor

Place: Kolkata

Date:
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STUDENT’S DECLARATION

I hereby declare that the Project Work with the title CONSOLIDATION IN THE HOTEL
INDUSTRY: A STUDY ON MARRIOTT INTERNATIONAL ACQUIRING STARWOOD
HOTELS & RESORTS WORLDWIDE submitted by me for the partial fulfilment of the
degree of B.B.A. Honours in Finance in Business under the University of Calcutta is my
original work and has not been submitted earlier to any other University /Institution for the
fulfilment of the requirement for any course of study.

I also declare that no chapter of this manuscript in whole or in part has been incorporated in
this report from any earlier work done by others or by me. However, extracts of any literature
which has been used for this report has been duly acknowledged providing details of such
literature in the references.

Signature:

Name: Harshita Tibrewal

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ACKNOWLEDGEMENT

I express my deep sense of gratitude to my respected and learned guides for valuable help and
guidance, I am thankful to him for the encouragement he has given me in completing the
project.

I am also grateful to respected Smt. Prapti Dasgupta (HOD) and Smt. Jamana Singh(HOD)
and to our respected Principal Dr. Shah for permitting me to utilise all the necessary facilities
of the institution.

I am also thankful to all the other faculty and staff members of our department for their kind
co-operation and help.

Lastly, I would like to express my deep appreciation towards my classmates and my

indebtedness to my parents for providing me the moral support and encouragement.
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ABSTRACT

There is no doubt that there is a growing trend within the hotel industry: consolidation. This
is not a new phenomenon within the hotel industry but it has been relatively quiet in recent
years. Perhaps the reason for this is the financial crises which drove many hotel companies
into this. In recent years, the market has changed; very strong performances by OTAs (Online
Travel Agency) and the emergence of disruptive companies such as Airbnd & Onefinestay.
The result of this increased pressure in the hotel market has caused companies to consider
inorganic growth through acquisition, but also the selling of hotels, brands and chain by
parent companies. The case for growth by brand acquisition is driven by hotel brands
unsatisfied thirst for rapid & significant growth. The project examines the impact of
acquisition of Starwood Hotels and Resorts by Marriott International.

KEY WORDS: Marriott, Starwood, consolidation, merger, acquisition, hotels

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LIST OF ABBREVIATIONS
 M&A: Merger and Acquisition
 SWOT: Strength, Weakness, Opportunity and Threat
 Inc.: Incorporated
 SPG: Starwood Preferred Guest
 VWAP: Volume Weighted Average Price
 G&A: General and Administrative expenses
 CWT: Carlson Wagonlit
 RFPs: Request for Proposal
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LIST OF TABLES

 TABLE:1- MARRIOTT AND STARWOOD SPEND MARKET SHARE

 TABLE:2- ESTIMATED NUMBER OF PROPERTIES OF MARRIOTT AND
STARWOOD
 TABLE: 3- CONSOLIDATION STATEMENTS OF INCOME
 TABLE: 4- CONSOLIDATION STATEMENTS OF CASH FLOW
 TABLE:5- PERCENTAGE OF NON-PREFERRED GLOBAL SPEND
 TABLE: 6- MERGER-RELATED COSTS AND CHARGES
 TABLE:7- BALANCE SHEET OF MARRIOTT INTERNATIONAL
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CONTENT

SERIAL
PAGE
NUMBE PARTICULARS
NUMBER
R
1 INTRODUCTION 10-12

1.1. Acquisition 10

1.2. Merger and Acquisition in The Hospitality

10-11
Department

1.3. Marriott International recent acquisitions 11

1.4. Marriott Acquisition of Starwood Hotels and

11
Resorts

1.5. Objectives of the Study 11

1.6. Research Methodology 12

2. BACKGROUND STUDY 13-16

2.1. Company Profile 13

2.2. Details Surrounding the Marriott and Starwood

14
Merger

2.3. Recent News on Starwood and Marriott merger 14-15

2.4. Announcements by Marriott 15-16

3. EVALUATION OF LEVELS OF STRATEGY 17-18

3.1. Corporate Strategy 17

3.2. Business Level Strategy 17-18

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3.3. Bowman’s Clock 18

MARRIOTT-STARWOOD MERGER: AN
4. 19-21
OPPORTUNITY OR A THREAT

5. ANALYSIS AND FINDINGS 22-36

5.1. SWOT analysis of Starwood Hotel and Resorts 22-23

5.2. SWOT analysis of Marriott International 23-24

5.3. Transaction Highlights and Strategic Benefits 25-26

5.4. Analysis according to CWT Solution Group 27-29

5.5. Marriott International, Inc. Consolidation

30
Statements of Income
5.6. Marriott International, Inc. Consolidation
31
Statements of Cash Flow

5.7. Acquisition and Depositions 32-33

5.8. Merger-Related Costs and Charges 34

5.9. Earnings Per Share 35

5.10. Balance Sheet of Marriott International Inc. from

35-36
2015 to 2018

6. RECOMMENDATION AND CONCLUSION 37-38

6.1. Recommendation 37

6.2. Conclusion 37-38

7. REFERENCE 39-40
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CHAPTER 1

INTRODUCTION

1.1. Acquisition

"An acquisition", according to Krishnamurti and Vishwanath (2008) "is the purchase of by
one company (the acquirer) of a substantial part of the assets or the securities of another
(target company). The purchase may be a division of the target company or a large part (or
all) of the target company's voting shares."

Acquisitions are often made as part of a company's growth strategy whereby it is more
beneficial to take over an existing firm's operations and niche compared to expanding on its
own. Acquisitions are often paid in cash, the acquiring company's shares or a combination of
both. Further, an acquisition may be friendly or hostile. In the former case, the companies
cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought or
the target's board has no prior knowledge of the offer. Acquisition usually refers to a
purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire
management control of a larger or longer established company and keep its name for the
combined entity. This is known as a reverse takeover.

1.2. Merger and Acquisition in The Hospitality Department

The global race for scale and distribution strength among hotel brand companies continues to
charge forward. Like other economic sectors, two primary growth strategies have emerged
within the hotel brand sector: growth by brand acquisition and growth by organic
development efforts.

The case for growth by brand acquisition is driven by hotel brands’ unquenchable thirst for
rapid and significant growth and, in some cases, public capital markets’ rewards for
delivering this growth. Relative to other sectors, and even after recent headline-grabbing
M&A deals such as the Marriott International/Starwood Hotels & Resorts Worldwide
combination and the AccorHotels/Fairmont Hotels & Resorts combination, the hotel industry
remains highly fragmented without a single player having significant global market share.
Market analysts estimate that the top hotel chains only account for approximately 33 percent
 11

of traditional hotel rooms on a global basis. This fragmentation will likely drive continued
M&A activity in the hotel brand sector. While not without challenges with integration of
multiple operating platforms and corporate cultures, growth through brand acquisitions is
generally viewed as more efficient than growth by organic development efforts.

One of the most recent and well-known name in this area internationally is the of Marriott
International.

1.3. Marriott International recent acquisitions

 Starwood Hotels and Resorts- Nov 16,2015
 Delta Hotels and Resorts- Jan 27,2015
 Protea Hotel- Apr 1,2014

1.4. Marriott Acquisition of Starwood Hotels and Resorts

The recent headlines state about Marriott International acquiring Starwood Hotel and
Resorts worldwide. On November 16, 2015, Marriott announced the acquisition of
Starwood Hotels and Resorts Worldwide for $13 billion. A competing offer for Starwood
at $14 billion from a consortium led by China's Anbang Insurance Group was announced
March 3, 2016, moving Starwood to cease the deal with Marriott and pursue the offer from
Anbang Insurance Group. After Marriott raised its bid to $13.6 billion on March 21,
Starwood terminated the Anbang agreement and proceeded again with the merger with
Marriott. Following all necessary regulatory approvals in the United States and around the
world over the course of 2016, Marriott closed the merger with Starwood on September
23, 2016, creating the world's largest hotel company with over 5700 properties, 1.1 million
rooms, and a new portfolio of 30 brands.

1.5. Objectives of the Study

The main objective of the study is to find out the level of impact on the companies, investors,
shareholders and other relevant factors on a merger and acquisition.

 To study the problem faced during the integration with Starwood.

 To study the SWOT analysis of Starwood.
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 To study the diverse issues associated to the procedure of Merger and Acquisition
1.6. Research Methodology
1.6.1. Time Frame:
The project was completed within four months from 1st November, 2018 to 20th
March, 2019. The project is done to know about the consolidations in the hotel
industries, concerning on Marriott International acquisition of Starwood Hotels
and Resorts.
1.6.2. Data Collection:
The data for this project is mainly collected on secondary data. One of the most
important uses of research methodology is that it helps in identifying the
problem, collecting, analysing the required information data and providing
alternative solution to the problem.
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CHAPTER-2

BACKGROUND STUDY

2.1. Company Profile

Marriott International

Marriott International is an American multinational diversified hospitality company that

manages and franchises a broad portfolio of hotels and related lodging facilities. Founded
by J. Willard Marriott, the company is now led by his son, Executive Chairman Bill Marriott,
and President and Chief Executive Officer Arne Sorenson.

It is headquartered in Bethesda, Maryland, in the Washington, D.C. metropolitan area.

Marriott International is the largest hotel chain in the world. It has more than 6,500 properties
in 127 countries and territories around the world, over 1.2 million rooms (as of September
2017), and an additional 195,000 rooms in the development pipeline. Marriot operates and
franchises hotel and licences vacation ownership hotels. In 2017, Marriott was ranked 33
on Fortune's "100 Best Companies to Work For" list.

Starwood Hotels and Resorts

Starwood Hotels & Resorts Worldwide, Inc., together with its subsidiaries, operates as a
hotel and leisure company worldwide. The company owns, operates, and franchises luxury
and upscale full-service hotels, resorts, residences, retreats, select-service hotels, and
extended stay hotels under the St. Regis, The Luxury Collection, W. Westin, Le Meriden,
Sheraton, Four Points, Aloft, Tribute Portfolio, and Element brand names. It is headquartered
at Stamford, Connecticut, United States.

It was one of the world's largest hotel companies that owns, operates, franchises and manages
hotels, resorts, spas, residences, and vacation ownership properties under its 11 owned
brands. As of 1 December 2014, Starwood Hotels and Resorts owned, managed, or
franchised over 1,200 properties employing over 180,400 people, of whom approximately
26% were employed in the United States.
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2.2. Details surrounding The Marriott And Starwood Merger

Marriott International, Inc. and Starwood Hotels & Resorts Worldwide, Inc. are planning to
merge, creating the largest hotel company in the world. During separate stockholder meetings
in 2016, shareholders of both Marriott International and Starwood Hotels & Resorts
Worldwide approved proposals which outlined plans for Marriott to acquire Starwood. At the
close of the deal, Starwood shareholders received 0.8 shares of Marriott including $21 per
Starwood common stock. The deal was closed in September of 2016, which began the
journey towards total integration of Starwood into Marriott.

The merger is not simply a benefit for shareholders or a step closer to building the world’s
largest hotel empire. Additionally, the merger of the loyalty programs specific to Starwood
and Marriott will secure the foundation for the largest loyalty program of its kind. By offering
to prospective customers a choice between over 5,500 hotels in over 100 countries, their
expanded portfolio caters to a commitment to customer experience and satisfaction that is
shared by both companies.

In the beginning, Marriott chose to keep loyalty programs for the two hotel brands
completely separate; that is, customers could book Marriott hotels with Marriott Rewards
Points and Starwood hotels with SPG Starpoint. Additionally, members had the opportunity
to link both accounts in order to enjoy elite status in both programs and switch between point
currencies at an exchange rate of one SPG Starpoint for every three Marriott Rewards Points.
This pleased Starwood account holders, as it respected the value of SPG Starpoint and made
sure that the merger would work for both parties. Upon closing, the plan was to eventually
build a newer, stronger loyalty program that played to the strengths of each one.

2.3. Recent News on the Starwood and Marriott merger

The final version of the new loyalty program was announced on April 16, and although it has
not gone into effect until August. The overall loyalty program merger benefits across Marriott
Rewards, Starwood Preferred Guest, and Ritz-Carlton Rewards. All three loyalty programs
have become one comprehensive loyalty program, where all points have been converted into
Marriott Rewards Points. The original 3:1 SPG Starpoint to Marriott Rewards Points ratio
were not applied till then. Finally, SPG Starpoint were converted to Marriott Rewards Points
using that conversion factor later in 2018
 15

However, the new loyalty program is still unnamed and will remain that way until 2019.
Because of this, members will still be earning points under the old program names until then,
even though the merge will begin in August. Non-elite members will enjoy an upgrade from
the old Starwood system, earning 10 points per dollar spent at each brand apart from
Residence Inn, Town Place Suites, and Element which will earn 5 points per dollar spent.

Instead of maintaining elite status with each program, elite members will now enjoy one
consolidated elite rewards system. When the merge is complete, the elite earning structure
will contain five categories: Silver, Gold, Platinum, Platinum Premier, and Platinum Premier
with Ambassador. The highest level is achieved after 100 booked nights; Platinum Premier
with Ambassador members will earn 17.5 points per dollar spent. However, this will be the
only elite tier with a spending requirement of $20,000 per year; an average of $200 per night.
Additionally, the new elite benefit structure encourages members to earn Platinum status,
since this unlocks all of the benefits apart from access to an Additional Choice Benefit, 48-
hour Guarantee, Ambassador Service, or Your24 service.

Under the new points redemption structure, customers will enjoy the privilege of having no
blackout dates. However, the new loyalty program will introduce a way for hotel brands to
price-gouge (or, points-gouge) during peak seasons. For example, if a property is worth
25,000 points per night during “standard” season, it will be worth 20,000 points per night
during the “off” season and 30,000 points per night during the “peak” season. Members
should keep this in mind when deciding when and how to redeem points under this structure;
however, this change will not take effect until February 1, 2019. Additionally, the category
status of each hotel brand has not yet been announced, so this change may end up being
beneficial to members rather than a devaluation. Marriott has announced that it will start
categorizing brands beginning this June.

2.4. Announcements by Marriott

Marriott has also announced that the SPG airline transfer points program will remain in
effect, and with the 3:1 points ratio discussed above, the transfer value of SPG Starpoint will
not be affected. Additionally, ten more airlines are due to join the partnership and the
efficiency of the program is projected to increase, decreasing processing time and
encouraging customers to take advantage of transfer opportunities.
 16

The merger will also expand Marriott’s credit card reach, including new cards coming from
Chase and American Express. American Express, which was originally partnered with SPG,
will offer a brand-new Starwood Preferred Guest American Express Luxury Credit Card
which will be accompanied by a myriad of great benefits. Also, new benefits are coming for
SPG and SPG Business cardholders through American Express. Through Chase, the all-new
Marriott Rewards Premier Plus Credit Card is set to launch on May 3rd, accompanied by an
impressive 100,000-point sign-up bonus. Marriott Rewards Business and Ritz-Carlton
Rewards cards will still exist under the new system, but the original Marriott Rewards
Premier card will be phased out once the new one launches. All things considered, the merger
is turning out to be beneficial for both brands, upholding the value of Starwood rewards and
remaining true to Marriott’s successful business model.
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CHAPTER-3
EVALUATION OF LEVELS OF STRATEGY

3.1 Corporate Strategy:

Marriot has been a leader in the hospitality Industry since 1927; Its corporate strategy
has helped It achieve this feat. The structure that defines the organisation is a
reflection of the status that is required of a global leader. However, Marriot (before
the merger) had less international exposure with 7614, of its properties in North
America. (respites it core values, the hotel chain was more appealing to mid-scale and
upper-sale brands inmates, 2015).
The long-term goal for Marriot was to be the Number 1 hospitality company in the
world (Marriot international, 2016). To do these, there was need to claim more market
share internationally, be more appealing to other segments of customers winch
include upper scale and upscale segments brands. The Core Values and structure of
the company were designed to support its long-term goal. The hospitality business is
all about service excellence and providing comfort to people irrespective of their
nationally or background. It is very proper for Organisations to align their
organizational strategy, structure with their long-term goats. An Inconsistent long-
term goal with organisation strategy could spell doom for that organisation, the
organisation might not be able to withstand any impact from its environment, market
etc. Marriott, core values which is centred on supporting and promoting employee
diversity, service excellence, putting people first, innovation, integrity and
environmental sustainability initiatives was selected to supports its long-term goal of
being the world leading hospitality chain.

3.2 Business Level Strategy

A business strategy is expected to provide support to the organization's corporate

strategy. Despites its core values standing the test of time, Strategic Business Units
(SBU) are focused on performance as they represent different divisions, groups and
are responsible for the, own profits and losses. Marriott regional (SBU) presences are
the Americas being the most profitable, Europe, Asia Pacific and Middle East and
Africa. Each Business unit is responsible for its expansion, competition, products
management. The expansion of business units must be within the confines of the
corporate strategy. Marriot's global target as at year end 2015 was to reach 1 million
rooms, $50 billion in real estate investment and provide additional 150.000 hotel jobs,
achieving this wouldn't have been possible without the Business units supporting with
their expansion plans. Several business units with its own plans, Asia Pacific portfolio
is expected to exceed 340 hotels in 19 countries by 2019 (Mania International. 2015).
Expansion in Asia could be one of the reasons Marriott merged with Stanwood.
 18

Stanwood has large market share in Asia especially in China where Marriott is hoping
to increase its presence. Marriott became the largest full-service hotelier in Canada in
2015 after its acquired Delta Hotels and Resorts Brand. It became the largest hotelier
in Africa by acquiring Protea Hotels in 2014. It is very obvious that Acquisition
(inorganic growth) is part of the corporate strategy of Marriott for expansion which
the respective business units have taken advantage of depending on the market
environment they find themselves. Business unit are not only expected to support
expansion, but to promote business/ community relationships and environmental
sustainability. The business units are guided by the global corporate strategy despite
their peculiarities and that of the market environment they find themselves.

3.3 Bowman’s Clock

The competitive position of Marriot/Starwood acquisition is undisputed. It is the

world's leading hotelier bringing together the best of both Marriott and Stanwood into
a single offering. Customers will have access to lifestyle, luxury and personalized
services irrespective of the segments of customers — be it corporate or individual,
upper scale or mid-scale etc. Marriott employed a differentiation strategy. The loyalty
programs of both Marriott and Starwood will provide high value proposition for
customers as well as its combined services. The combined services/loyalty programs
will serve as the unique value proposition for its customers irrespective of their race
or religion, segments. The unique proposition which is expected of a global leader is
appeal to all segments of customers. Customers will have best of both worlds.
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CHAPTER-4

MARRIOTT-STARWOOD MERGER: AN OPPORTUNITY OR

A THREAT

Marriott bought Starwood in a $12 billion deal that has created the world's largest hotel
company, with over 5500 hotels and 1.1 million rooms spanning 100 countries and 30 brands.
Naturally, the effect of this new mega corporation will be far reaching in the global
hospitality business and will change things for consumers as well.

In India too, the impact of this deal is significant. Together, the combined room inventory of
the Marriott-Starwood hotels has made it the largest of any hotel chain in India. And for the
first time in 113 years the Taj Group's preeminent position as India's largest hotel brand has
be surpassed.

From a traveller's perspective, the bigger combine of hotels from Marriott and
Starwood means:

1.  Easier access to more choices: While the individual brands will continue to have
their identities and separate web properties, most consumers look for hotel options at
a city level. And that's where they will be delighted to find a wider choice across
brands and price points and locations, all in one place. Without having to go to
different sites. The Marriott-Starwood combine might well rival some of the better-
known hotel aggregator portals.

2. More attractive Rewards programme: Worldwide Marriott and Starwood would

now boast a combined 75 million members across their loyalty programmes. In India
too, members of one loyalty programme would now have a wider choice of rewards to
redeem, across a much larger array of brands and locations. One more reason for
travellers to opt for these brands while booking their next hotel stay.
 20

3.  Cheaper prices for a better-quality experience: The efficiencies of scale that the

combine will bring to all brands in the Marriott-Starwood fold will help the hotels
offer better 'deals', either in terms of direct room rates or in terms of value-added
services that travellers crave. This rate advantage is also likely to translate into smart
upselling opportunities for the hotels that consumers lap up for their greater perceived
value.

From the perspective of other hotel brands in India, this new hospitality landscape will
mean:

1. Greater pressure on filling rooms and for achieving room revenue targets: Not
only would the costs of acquiring guests go up in terms of marketing and advertising
but also the pressure on discounting to win a customer would increase. Thereby
affecting the profitability of the hotel chains.

2. Customer retention would become a bigger challenge: The enhanced power of the
Marriott-Starwood loyalty programmes would make loyalty more ethereal for the
other hotel chains. Guests would rather choose a hotel where every stay gives them
something in the future, perhaps in the form of holiday stay offers. And lifestyle
experiences that they can redeem against points earned.

But adversity is the best opportunity to do things differently. And the smart
Indian chains are likely to take on the 800-pound Marriott-Starwood gorilla in
several ways:

1. Look to create more distinct offerings: Focusing on what is unique in their

offerings whether in terms of location, hotel design, service ethos, and destination
offerings will help these chains stand out from the new big combine. And also attract
the consumer who is jaded by the sameness of hotel offerings over the over the years.
Taking on specific brands from the Marriott-Starwood portfolio more aggressively
would help rather than trying to complete at general level.
 21

2. Focus on new lodging segments: AirBnB is a great example of a brand that disrupted
the global hospitality business even without owning a single hotel room of its own.
There is no reason smart Indian hotel brands cannot rethink their businesses. And
focus on growth from new lodging segments that address the needs of the millennial
travellers, rather than the guests of yesterday.

3. Innovative loyalty programmes: It will be very hard for Indian chains to compete
with the Marriott-Starwood rewards programme on their own steam. But smarter tie-
ups with other global service providers like airlines, credit cards and even big
ecommerce brands will allow them to offer their guests a wide array of redemption
opportunities way beyond the footprint of their hotels in India and abroad.

4. New reservation channels: The time has come to look beyond hotel websites and
travel intermediaries as the key booking channel. An aggressive focus on selling
through experiential and community-focused channels like social media can help
Indian brands sidestep the giant shadow of Marriott and Starwood, and create new
ways of reaching and wowing potential customers.
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Chapter 5

ANALYSIS AND FINDINGS

5.1. SWOT Analysis of Starwood Hotel and Resorts

 STRENGTH
Strengths are defined as what each business does best in its complete range
of operations which can give it an upper hand over its competitors. The following are
the strengths of Starwood Hotels & Resorts:
 Focus on people: Starwood Hotels has always been a people-oriented company and be
it customers or employees the company has always put them at the forefront of their
strategies. Their people focus has made them deliver customer-centred services and
the service quality is perfect in all their properties.

 Customer Loyalty programs: Sub-brands of Starwood Hotels & Resorts like Marriott

and Le Meridian have the Starwood Loyalty Program which accumulates loyalty
points for regular customers during each of their visits. These points can be converted
to multiple benefits like room up gradation, free stays or luxury personalized meals.
These programs have been able to create a loyal customer base.

 WEAKNESS

Weaknesses are used to refer to areas where the business or the brand needs

improvement. Some of the key weaknesses of Starwood Resorts are:

 Expansion plans: Starwood Hotels has been expanding aggressively to reach to all

parts of the world. The expansion plans are not just eating into the budget of the hotel
chain but also limiting its opportunities because of cheaper competitors.
 23

 Real Estate Issues: The rising cost of land as well the fluctuating interest rates. In a
bid to expand to emerging economies the hotel has been acquiring land at very high
rates and this will prove to be a critical costing mistake in the long run.
 Low-cost options: In most locations across their regions of operations Starwood
Hotels they are facing a lot of competition from low-cost players like budget hotels,
home stays etc. With financial crisis across the world, customers are choosing to
spend lesser and lesser on boarding and lodging with the result that there is a lot
of brand switching.

 OPPOURTUNITY

Some of the opportunities include:

 Changing Market Trends: The trends in the hospitality market are changing.
The customer is fussier but willing to pay more for value-added services. This
means that hotels by focusing more on personalized attention can charge
higher for their facilities.

 THREAT
Threats are those factors in the environment which can be detrimental to the growth of
the business. Some of the threats include:
 Competition: The main competitors of Starwood Hotels & Resorts are Hilton,
Wyndham Worldwide, and Intercontinental Hotels.

5.2. SWOT Analysis of Marriott international

 STRENGTH

1. High brand recognition and recall

2. Technical innovations to improve customer experiences and Constant upgrade of

business processes

3. Good employee retention with a total workforce of 150,000

 24

4. Has over 3700 hotels and resorts in over 70 countries

5. Various brands range from attainable to aspirational

 WEAKNESS

1. Competition from long established hotel chains means limited market share

2. Global expansion and high number of hotels may lead to brand dilution

 OPPORTUNITIES

1. High potential in emerging markets

2. Innovation in customer services

3. Better interiors/Well done renovations

4. Indian and as well as global hospitality sectors are looking at a boom

 THREATS

1. Entry of several international brands along with the strong hold of long standing, well
established Indian brands

2. Competition on price points

3. Stagnated growth

The purchase gives Marriott more leverage with corporate travel departments who often
look for one giant chain to house all of their employees. It also gives Marriott more power
over Expedia and Priceline, the two giant online travel agencies that sell rooms on behalf
of hotel companies in exchange for a commission. The hotel industry has spent the last
year trying to get travellers to book directly with them instead of the travel agencies to
avoid paying those fees.

To get Starwood, Marriott had to outbid China's Anbang Insurance Group. U.S. and
European anti-trust regulators were quick to approve the sale but the Chinese government
hesitated, delaying the sale by months.
 25

5.3. Transaction Highlights and Strategic Benefits

Summary of Transaction: Under the terms of the agreement, at closing, Starwood

shareholders will receive 0.92 shares of Marriott International, Inc. Class A common stock
and $2.00 in cash for each share of Starwood common stock. On a pro forma basis, Starwood
shareholders would own approximately 37 percent of the combined company’s common
stock after completion of the merger using fully diluted share counts as of September 30,
2015. Total consideration to be paid by Marriott totals $12.2 billion consisting of $11.9
billion of Marriott International stock, based on the 20-day VWAP (volume weighted average
price) of Marriott stock ending on November 13, 2015, and $340 million of cash, based on
approximately 170 million fully diluted Starwood shares outstanding at September 30, 2015.
Based on Marriott’s 20-day VWAP ending November 13, 2015, the merger transaction has a
current value of $72.08 per Starwood share, including the $2 cash per share consideration.
Starwood shareholders will separately receive consideration from the spin-off of the
Starwood timeshare business and subsequent merger with Interval Leisure Group, which has
an estimated value of approximately $1.3 billion to Starwood shareholders or approximately
$7.80 per Starwood share, based on the 20-day VWAP of Interval Leisure Group stock
ending November 13, 2015. The timeshare transaction should close prior to the Marriott-
Starwood merger closing.

Total Estimated Value to Starwood Shareholders

Share Price of Marriott International, Inc.- $70.08

Cash Consideration Per Share- $2.00

Value of Vistana Disposition- $7.80

Total Value- $79.88

After adjusting for the value of consideration to be separately received by Starwood

shareholders in the Vistana transaction, the merger consideration represents a premium of
approximately 6 percent over the Starwood stock price using the 20-day VWAP ending
November 13, 2015 and a premium of approximately 19 percent using the 20-day VWAP
ending October 26, 2015 (prior to recent acquisition rumours).
 26

 Leveraging Operating Efficiencies: Marriott expects to deliver at least $200 million

in annual cost savings in the second full year after closing.  This will be accomplished
by leveraging operating and G&A efficiencies. 

 Accretive to Earnings: Marriott 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. 

 Significant Capital Recycling Program: Marriott expects Starwood to continue its

capital recycling program, generating an estimated $1.5 to $2.0 billion of after-tax
proceeds from the sale of owned hotels over the next two years.  The hotels are
expected to be sold subject to long-term operating agreements.

 Continued Strong Returns to Shareholders: On a pro forma combined basis,

Marriott and Starwood generated $2.7 billion in fee revenue in the 12 months ending
September 2015.  In 2015, Marriott expects to return at least $2.25 billion in
dividends and share repurchases to shareholders.  Marriott believes it can return at
least as much in the first year following the merger.

 Accelerated Global Growth: Marriott International expects to accelerate the growth

of Starwood’s brands, leveraging Marriott’s worldwide development organization and
owner and franchisee relationships.  The combined company will have a broader
global footprint, strengthening Marriott’s ability to serve guests wherever they travel.

 Lifestyle Leader: Starwood’s first-mover advantage in the lifestyle category, along

with Marriott’s broad range of brands in this segment, positions the combined
company as a leader in the lifestyle space.  With Marriott’s strong owner and
franchisee relationships, the combined company expects growth of its lifestyle brands
to accelerate.

 World-Class Associates: This combination brings together two of the most talented

teams in the industry.  Together, they will combine their innovative ideas and service
commitment to deliver unforgettable guest experiences.

 Leading Loyalty Programs: Today, Marriott Rewards, with 54 million members,

and Starwood Preferred Guest, with 21 million members, are among the industry’s
 27

most-awarded loyalty programs, driving significant repeat business.  They should be

even stronger when the companies merge.

 Owner and Franchisee Preference: The combined company will be able to realize
increased efficiency by leveraging economies of scale in areas such as reservations,
procurement and shared services.  Combined sales expertise and increased account
coverage should drive additional customer loyalty, increasing revenue.  We expect
that these enhanced efficiencies and revenue opportunities should drive improved
property-level profitability as well as greater owner and franchisee preference for the
combined company’s brands.

 Commitment to Management and Franchising: Marriott remains committed to its

management and franchise strategy, minimizing capital investment in the business to
generate attractive shareholder returns.

5.4. Analysis according to CWT Solutions Group

Using CWT aggregate client data, CWT Solutions Group hotel team analysed several top city
hotel markets across the globe to determine likely room night market share impact based on
the Marriott/Starwood deal. The implications are significant. In 14 of the 20 top cities, the
combined Marriott/Starwood portfolio is anticipated to represent 30% or more of corporate
room nights, with Minneapolis market share reaching 50%.
 28

TABLE:1- MARRIOTT AND STARWOOD SPEND MARKET SHARE

CWT overall client data indicates Marriott has, more than other chains, chosen not to take
part in corporate program RFPs. If this strategy continues, buyers should prepare for an even
more challenging environment, particularly in top Marriott Markets. Starwood, on the other
hand, has been much more likely to take part in bids. We'll Have to wait and see the new
entity’s strategy. The merger will also reduce the number of hotels involved in the RFP
process, which should streamline negotiations. We expect competition to be fierce from other
major chains as they look to retain relationships with corporate buyers. And the ability to
negotiate in non-preferred markets may actually increase for some clients, with combined
Marriott/Starwood volume enabling chain-wide deals once unavailable. The new entity won’t
significantly change the class of hotel mix. However, Starwood will fill some gaps in
Marriott's portfolio, specifically with its strong international presence, particularly in Asia
and Latin/South America, along with Starwood’s strong lifestyle brand track record.

Traveller Compliance to Preferred Hotel Program

Another potential area of impact is traveller compliance with the corporate travel program.
This is important because one of the best tools corporate travel buyers have in negotiations is
the ability to shift traveller spend. If a buyer’s combined spend post-merger is significantly
different, their leverage will also change and buyers should be aggressive from the start. A
key caveat is that this strategy is most effective in mandated programs. As more and more
programs have moved to a less mandated approach in recent years, companies may have less
influence with travellers and therefore less leverage in their programs. Based on an Idea
Works July 2015 survey2, the highest reward payback for every dollar spent was the Marriott
Rewards Program. While Starwood’s reward night value was behind many of the other top
chains in the study, Starwood loyalty customers place a premium value on the perks
including late checkout, room upgrades and welcome gifts. It isn’t possible to predict what
the new Marriott loyalty program will entail, but combining two of the most coveted loyalty
programs is likely to pose a significant challenge for travel managers. Marriott Rewards is
estimated to have 54 million members while Starwood Preferred Guest has 21 million.
 29

TABLE: 2- ESTIMATED NUMBER OF PROPERTIES OF MARRIOTT AND

STARWOOD

While Marriott executives are optimistic loyal travellers will use properties from either
brand, they have yet to discuss how they intend to merge the loyalty programs. Perhaps a clue
lies in Marriott’s CEO, Arne Sorenson, saying the Starwood loyalty program was one of the
most attractive reasons for the acquisition. Another clue could come from the airline mergers
of the last decade, which led to significant erosion of loyalty program value for both traveller
status and mileage. But hotels are different. There is a relative abundance of choice within the
majority of cities, and since hotels are often owned by entities other than the hotel chain, this
fragmentation can increase competition not only across chains but even within a chain or
brand in the same city. CWT Solutions Group therefore does not foresee the same impact
seen in the airline industry. If a hotel loyalty program does not benefit corporations and their
travellers, strong competition remains to take share from any new hotel entity and threaten
anticipated benefits to the bottom line.
 30

5.5. Marriott International, Inc. Consolidation Statements of Income

TABLE: 3- CONSOLIDATION STATEMENTS OF INCOME

 31

5.6. Marriott International, Inc. Consolidation Statements of Cash

Flow

TABLE: 4- CONSOLIDATION STATEMENTS OF CASH FLOW

 32

5.7. Acquisitions and Depositions

Acquisitions

The following table presents the fair value of each type of considerations that Marriott
International transferred in the Starwood Combination.

TABLE:5- PERCENTAGE OF NON-PREFERRED GLOBAL SPEND

 33

Dispositions

In the 2017 fourth quarter, Aramark purchased Avendra LLC, and Marriott received a non-
recurring pre-tax gain of $659 million for their 55 percent ownership interest in Avendra,
which they reflected in the “Gains and other income, net” caption of their Income Statements.
They committed to the owners of the hotels in their system that the benefits derived from
Avendra, including any dividends or sale proceeds above their original investment, would be
used for the benefit of the hotels in their system. Accordingly, they intend to utilize the net
proceeds for the benefit of their system of hotels and are currently developing those plans.
Spending under those plans will be expensed in their Income Statements and reduce their
profitability in future periods. In conjunction with the sale of Avendra to Aramark, they
entered into a new five-year procurement services agreement with Avendra for the benefit of
their managed and owned properties in North America. Since the Merger Date, they have
sold the following properties they acquired in the Starwood Combination:

 In the 2018 first quarter, they sold The Sheraton Buenos Aires Hotel & Convention
Centre and Park Tower, A Luxury Collection Hotel, Buenos Aires, both Caribbean
and Latin America properties, and received $105 million in cash.
 In the 2017 fourth quarter, they sold the Sheraton Centre Toronto Hotel, a North
American Full-Service property that was owned on a long-term ground lease, and
received C$335 million ($268 million) in cash.
 In the 2017 first quarter, they sold the Westin Maui, a North American Full-Service
property that was owned on a long-term ground lease, and received $306 million in
cash.
 In the 2016 fourth quarter, they sold The St. Regis San Francisco, a North American
Full-Service property, and received $165 million in cash. Additionally, in the 2017
second quarter, they sold the Charlotte Marriott City Centre, a North American Full-
Service property, and received $169 million in cash. They recognized a $24 million
gain in the “Gains and other income, net” caption of their Income Statements. In the
2016 second quarter, they sold a North American Limited-Service segment plot of
land and received $46 million in cash.
 34

5.8. Merger-Related Costs and Charges

The following table presents pre-tax merger-related costs and other charges that we incurred
in connection with the Starwood Combination.

TABLE: 6- Merger-Related Costs and Charges

Transaction costs represent costs related to the planning and execution of the Starwood
Combination, primarily for financial advisory, legal, and other professional service fees.
Employee termination costs represent charges and adjustments for employee severance,
retention, and other termination related benefits. Integration costs primarily represent
integration employee salaries and share-based compensation, change management
consultants, and technology-related costs. Merger related interest expense in 2016 reflects
costs that they incurred for a bridge term loan facility commitment and incremental interest
expense for debt incurred related to the Starwood Combination.

In connection with the Starwood Combination, they initiated a restructuring program to

achieve cost synergies from their combined operations. They did not allocate costs associated
with their restructuring program to any of their business segments. The following table
presents their restructuring reserve activity during 2017
 35

5.9. Earnings Per Share

The table below illustrates the reconciliation of the earnings and number of shares used in
our calculations of basic and diluted earnings per share:

5.10. Balance Sheet of Marriott International INC. from 2015 to 2018

(values in 000’s)A(null Income Statement (values in 000's)Get
Quarterly Data

Period Ending: Tren 12/31/2018 12/31/2017 12/31/2016 12/31/2015

d

Current Assets

Cash and Cash Equivalents $316,000 $383,000 $858,000 $96,000

Short-Term Investments $0 $0 $0 $0
 36

Period Ending: Tren 12/31/2018 12/31/2017 12/31/2016 12/31/2015

d

Net Receivables $2,133,000 $1,973,000 $1,695,000 $1,103,000

Inventory $0 $0 $0 $0

Other Current Assets $257,000 $384,000 $818,000 $185,000

Total Current Assets $2,706,000 $2,740,000 $3,371,000 $1,384,000

Long-Term Assets

Long-Term Investments $857,000 $876,000 $973,000 $380,000

Fixed Assets $1,956,000 $1,793,000 $2,335,000 $1,029,000

Goodwill $9,039,000 $9,207,000 $7,598,000 $943,000

Intangible Assets $8,380,000 $8,544,000 $9,270,000 $1,451,000

Other Assets $587,000 $593,000 $477,000 $223,000

Deferred Asset Charges $171,000 $93,000 $116,000 $672,000

Total Assets $23,696,000 $23,846,000 $24,140,000 $6,082,000

Current Liabilities

Accounts Payable $3,075,000 $3,288,000 $2,972,000 $1,981,000

Short-Term Debt / Current Portion of $833,000 $398,000 $309,000 $300,000

Long-Term Debt

Other Current Liabilities $2,529,000 $2,121,000 $1,866,000 $952,000

Total Current Liabilities $6,437,000 $5,807,000 $5,147,000 $3,233,000

Long-Term Debt $8,514,000 $7,840,000 $8,197,000 $3,807,000

Other Liabilities $5,304,000 $5,429,000 $4,419,000 $2,616,000

Deferred Liability Charges $1,216,000 $1,188,000 $1,020,000 $16,000

Misc. Stocks $0 $0 $0 $0

Minority Interest $0 $0 $0 $0

Total Liabilities $21,471,000 $20,264,000 $18,783,000 $9,672,000

Stock Holders Equity

Common Stocks $5,000 $5,000 $5,000 $5,000

Capital Surplus $5,814,000 $5,770,000 $5,808,000 $2,821,000

Retained Earnings $8,982,000 $7,242,000 $6,501,000 $4,878,000

Treasury Stock ($12,185,000 ($9,418,000 ($6,460,000 ($11,098,000)

 37

Period Ending: Tren 12/31/2018 12/31/2017 12/31/2016 12/31/2015

d

) ) )

Other Equity ($391,000) ($17,000) ($497,000) ($196,000)

Total Equity $2,225,000 $3,582,000 $5,357,000 ($3,590,000)

Total Liabilities & Equity $23,696,000 $23,846,000 $24,140,000 $6,082,000

TABLE:7- BALANCE SHEET OF MARRIOTT INTERNATIONAL

CHAPTER- 6

RECOMMENDATION & CONCLUSION

6.1. Recommendation
Despite its contributions to the hospitality finance and M&As literature, this study has
limitations. We analysed the shareholders’ reactions to acquisition announcements in
the short term. While short-term reactions have important implications for
stakeholders, it is of paramount importance to examine the long-term returns from
acquisitions. However, analysing the long-term returns to Marriott shareholders from
acquisitions of Starwood requires future research. The integration of two companies
and seizing opportunities in the global hotel industry are still perceived to have major
challenges. The integration might result in lower employment numbers, which
diminish the economic impacts to tourism. The effect of acquisitions at property and
destination level should be investigated. Also, future studies should examine the
property-level competition and performance figures between Marriott and Starwood
properties and also across other firm properties to determine whether and how the
merger affect owners. Similarly, issues regarding the loyalty program require further
research. Also, we examined shareholders’ reactions to news around the acquisition
for a single event. Future research is necessary to investigate the effect of news events
to returns around multiple acquisitions to corroborate our findings.
 38

6.2. Conclusion
Marriott International didn’t become the world largest hotel chain overnight. It
became the number 1 hotel chain after series of effort in staying true to the values,
goals and objectives it was set for. It has been consistent in the efforts over the years.
Marriott International has become one the world's leading hospitability service
provider with it providing world class facility, innovation, smartly leading the market.
It has its hotel strategically located. It also employs skilful and educated employees. It
has been focusing on the sustainable management of its resources. With the increased
in standard of living of the people around the world, coming of ecommerce, it has
significantly taken advantage of both the situation to its favour.
39
 40

CHAPTER-7

REFERENCE

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http://shodhganga.inflibnet.ac.in/bitstream/10603/12642/5/05_chapter%201.pdf
2. Marriott closes $13-billion purchase of Starwood to become world's largest hotel
chain (2016, September 23). Retrieved from:
https://www.latimes.com/business/la-fi-marriott-starwood-20160923-snap-story.htm
3. Bomey, N. (2016, March 18) Starwood dumps Marriott deal for competing bid.
Retrieved from:
https://www.usatoday.com/story/money/2016/03/18/starwood-marriott-international-
anbang-insurance-group/81959330/
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https://finance.yahoo.com/news/sheraton-owner-starwood-accepts-higher-
113737468.html
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Worldwide, Creating World’s Largest and Best Hotel Company While Providing
Unparalleled Guest Experience (2016, September 9). Retrieved from:
https://news.marriott.com/2016/09/marriotts-acquisition-of-starwood-complete/
6. Marriott International to Acquire Starwood Hotels & Resorts Worldwide (2015,
November 16). Retrieved from:
https://marriott.gcs-web.com/news-releases/news-release-details/marriott-international-
acquire-starwood-hotels-resorts-worldwide
7. Marriott International SWOT Analysis, Competitors & USP. Retrieved from:
https://www.mbaskool.com/brandguide/tourism-and-hospitality/2370-marriott-
international.html
8. Whitmore, G. (2016, April 18) Details Surrounding the Marriott and Starwood
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https://www.forbes.com/sites/geoffwhitmore/2018/04/18/details-surrounding-the-
marriott-starwood-merger/#19f77335c072
 41

9. Marriott International to Acquire Starwood Hotels & Resorts Worldwide,

Creating the World’s Largest Hotel Company (2016, November 16). Retrieved
from:
https://news.marriott.com/2015/11/marriott-international-to-acquire-starwood-hotels-
resorts-worldwide-creating-the-worlds-largest-hotel-company/
10. Why Marriott International is the leader in the Hospitality Industry (2016, May
21). Retrieved from:
https://www.linkedin.com/pulse/why-marriott-international-leader-hospitality-industry-
pulkit-khare
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https://www.nasdaq.com/symbol/mar/financials?query=balance-sheet&data=quarterly
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https://www.emeraldinsight.com/doi/pdfplus/10.1108/JHTI-10-2017-0009