Marriott knows that in order to make money in the long run, you need to spend some. It also knows that constant communication with your current shareholders -- and your future shareholders -- is crucial when you're about to spend $12.4 billion to buy out one of your competitors.
Marriott would have collected a $450 million breakup fee, in addition to $8 million in extra costs, from Starwood/Anbang, but it probably would have lost much more overall, in the long term, in the missed opportunity of becoming the world’s largest hotel company.
Marriott recently disclosed it spent a total of $8 million in transaction- and transition-related costs associated with its acquisition of Starwood for the first quarter of 2016 in recent U.S. Securities and Exchange Commission filings.
But when you consider that $8 million in costs, and compare it to the nearly $12.4 billion Marriott will likely end up paying to buy Starwood, that $8 million figure doesn’t seem like very much. That $8 million is also much less than what Starwood spent during the first quarter on “professional fees” related to the planned merger with Marriott, which amounted to $19 million.
Although, had Anbang followed through with its last offer to buy Starwood, Anbang would have footed the bill for the total $458 million Starwood would owe to Marriott. And, as Executive Chairman Bill Marriott revealed on April 6, had Anbang provided the financing for its all-cash $13.8 billion bid for Starwood, Marriott would have been the one walking away. For Starwood, what’s $19 million to lose, compared to that $13.8 billion in cash from Anbang?
While both Starwood and Marriott combined have spent $27 million on costs related to their planned merger, together they stand to save approximately $250 million within just a few years after merging. Not only that, they’ll have the most scale of any of their competitors, with 1.1 million rooms spread out over 5,500 hotels and 30 different brands.
Marriott clearly hasn’t forgotten about the enormity of this deal. After nearly losing Starwood to Anbang, it isn’t content to revel in its victory. Instead, it’s making sure everyone — Marriot shareholders in particular, and its future shareholders from Starwood — knows just how serious they are about making sure this deal is as successful as possible.
That was a message echoed repeatedly in its first quarter earnings conference call on April 28, as well as in its annual shareholders meeting on May 6.
While most companies rarely open up their annual shareholders’ meetings to the public, Marriott chose to broadcast its 2016 meeting, allowing shareholders and the wider public a glimpse into what the company intends to do with what Bill Marriott described as “the most significant transaction our company has ever undertaken.”
During the meeting, CEO Arne Sorenson reiterated much of what he has said previously about the deal, which both Marriott and Starwood shareholders approved on April 8. Namely that the transaction still needs to clear regulatory hurdles, that it is expected to close by mid-year, and that it will ultimately provide value to Marriott’s shareholders, its hotel owners, and to both Starwood and Marriott associates. He also said the Marriott Rewards, Ritz-Carlton Rewards, and Starwood Preferred Guest loyalty programs will also eventually become one.
So what else was on shareholders’ minds, aside from the Starwood deal?
Human touch versus increasing reliance on technology. While Marriott, as well as its competitors, have emphasized increasing investments in offering tech-based customer service solutions, one shareholder wondered if the company was sacrificing human customer service interactions for the sake of technology. Sorenson said that although Marriott is still committed to providing enhanced mobile tech solutions for its customers, and that in 2015, more than $1 billion in reservations were made though Marriott’s mobile app, the company will not forget the importance of “human touch” in hospitality.
“Even for young, tech-enabled travelers, everyone is interested in receiving that genuine welcome and human touch,” Sorenson said. “We want to make sure that part of Marriott’s culture also extends when the transaction [with Starwood] closes.”
Will Marriott ever reverse its current asset-light strategy and begin to own more hotels? Don’t count on it.
“We’re not going to own hotels,” said Bill Marriott.
Sorenson added, “I think, sitting here today, we have roughly 4,500 hotels in our system. We own less than 10. Those 10 are eventually all for sale. We’re not long-term holders of real estate.” He said that for Marriott, its strategy is to work with local partners and that its expertise doesn’t lie in developing real estate. “It’s a local experts’ game,” he said, referencing markets such as China, for example.
What does this mean for the Starwood acquisition? It means we can expect to see Marriott continue to encourage the sale of Starwood’s 23 owned real estate assets, two of which may soon be sold to the Qatar Investment Authority and five of which will be transferred to Interval Leisure Group (ILG), following the close of Starwood’s timeshare spinoff.
Although Starwood’s timeshare spinoff to ILG was supposed to close on April 30, and is currently delayed, it’s still expected to be completed prior to the close of the Marriott-Starwood deal. So, as long as that ILG deal closes before the Marriott-Starwood merger, Marriott and Starwood will be well on their way to what Bill Marriott described as “creating the largest and most powerful hotel company in the world.”
Shortly after the meeting concluded, Marriott also announced some good news for its investors. The company plans to issue a quarterly cash dividend of 30 cents per share of common stock to shareholders of record as of May 20 on June 30, a 20 percent increase over the previous quarterly dividend amount of 25 cents per share.
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Photo credit: A Marriott flag hangs at the entrance of the New York Marriott Downtown hotel in Manhattan, New York. Andrew Kelly / Reuters