MoneyWeek: Merger creates upmarket giant in the hotel sector

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Marriott CEO Arne Sorenson is making a play for Starwood Hotels

America’s Marriott International is to buy Starwood Hotels, whose brands include Sheraton and Westin, for $12.2bn. Together they will form the world’s biggest hotel company with over 5,500 hotels, 1.1 million rooms, 30 brands and $2.7bn in revenue. This is the industry’s biggest acquisition since equity firm Blackstone bought Hilton for $26bn in 2007.
What the commentators said

“The deal comes at a heady time for hotels,” said Economist.com. Business travel has bounced back since the crisis, and the supply of new rooms has yet to catch up, so revenue per room has been healthy of late. But the good times may not last much longer. Supply is now set to rise while hotels “face relentless change online”. Online travel agencies such as Expedia take a big cut of hotel bookings, and price comparison sites put downward pressure on room prices.

This backdrop explains Marriott’s move, said Andrew Sangster, director of Hotel Analyst, cited in The Times. It was falling behind in terms of scale, “not so much from rival hoteliers but more from technology companies feasting on what is a fragmented industry”. The deal will give Marriott more pricing power at the “swankier end of the business hotel market” in the US, where hotel chains make the highest profits while keeping the likes of Expedia at arm’s length. In a hotel world dominated by six big operators, “size matters”, said Dominic Walsh in The Times.

Bad news for consumers, said Nils Pratley in The Guardian. It’s been the same story in the brewery market; witness Anheuser-Busch InBev’s £68bn purchase of SABMiller. “One of these days we’ll be able to go anywhere in the world to sit in the bar of one of a single company’s hotels drinking a single company’s beer, all sold with the illusion of greater choice.”

Originally published in MoneyWeek 19/11/2015: http://moneyweek.com/merger-creates-upmarket-giant-in-the-hotel-sector/

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