INDIA IMPACT. In India, Marriott-Starwood merged entity may disrupt hospitality market

Marriott International and Starwood Hotels & Resorts Worldwide on Monday announced a $12.2-billion merger deal, which will result in the companies operating or franchising more than 5,500 hotels with 1.1 million rooms worldwide.

The deal which is expected to close next year, will not only make the merged entity the world’s largest hotel company but also the biggest player in India in terms of rooms inventory, beating the homegrown market leader Taj Hotels.

It is expected to disrupt the hospitality market in India as it gives the Marriott-Starwood combine the advantage of scale, a far wider brand portfolio, as well as distribution strength, riding on two very strong loyalty programmes — Marriott Rewards (54 million members worldwide) and SPG Rewards (21 million members).

According to the latest HVS report, as of August 2015, Taj Resorts and Palaces (including Ginger) is the market leader in India with over 13,000 rooms, followed by ITC Hotels (including Fortune) with over 9,000 rooms. Carslon Rezidor ranked third in terms of number of rooms with Marriott and Starwood coming in at fourth and fifth places with over 8,000 and over 7,000 rooms, respectively. Post acquisition, the entity will overtake Taj in sheer scale, and could build on the advantage thanks to the two chains’ strong development pipeline. Starwood has 47 operating hotels in India and 37 in the pipeline while Marriott has 30 operating and 45 in the pipeline.

Currently Marriott operates seven brands straddling luxury to mid-range (The Ritz Carlton, JW Marriott, Renaissance, Marriott Hotels and Resorts, Marriott Executive Apartments, Courtyard and Fairfield), while Starwood too has seven brands (St Regis, Luxury Collection, Le Meridien, Westin, Sheraton, Aloft, Four Points by Sheraton. The question is will these brands cannibalise each other?

Says Vijay Thacker, Director, Horwath HTL — India, “The two companies will have to work it out amongst themselves…there may be some brand consolidation on the cards.” However, Ashish Jakhanwala, MD and CEO of hotel asset company SAMHI hotels, that has both Starwood as well as Marriott flags on his properties, says “All brands are superior to the companies that own them – I think there will be happy co-existence.”

Where the combine will stand to gain is in sheer distribution. As Jakhanwala, says, “It’s the age of size. At a time when the industry is dealing with the threat from Online Travel Agents, and Airbnb, the combined entity will have the power of a bigger distribution to attract guests on their own. I don’t think they will hurt the revenue of the Indian chains – but they will certainly gain delta (additional) revenue as the market size expands.”

Horwath’s Thacker feels the deal could result in larger dominance in specific markets within India. “For instance, in Pune, Marriott and Starwood will together own a chunk of the hotel inventory,” he says.

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 per cent of the combined company’s common stock after completion of the merger using fully diluted share counts as of September 30, 2015.

“One-time transaction costs for the merger are expected to total approximately $100-150 million. Transition costs are expected to be incurred over the next two years. They cannot be estimated at this time, but are expected to be meaningful,” the company said in a global statement.

Arne Sorenson will remain President and CEO of Marriott International following the merger and Marriott’s headquarters will remain in Bethesda, Maryland. Marriott’s Board of Directors following the closing will increase from 11 to 14 members with the expected addition of three members of the Starwood Board of Directors, the statement added.

The transaction is subject to Marriott International and Starwood Hotels & Resorts Worldwide shareholder approvals, completion of Starwood’s planned disposition of its timeshare business, regulatory approvals and the satisfaction of other customary closing conditions. Assuming receipt of the necessary approvals, the parties expect the transaction to close in mid-2016.

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