WOW, WOW, WOW!
There have been rumors about a Starwood takeover for just about the entire year now, and Starwood’s CEO has even gone so far as to say that he expects Starwood to be taken over by the end of the year.
The big question has been who will take over Starwood. There have been many contenders, and at various points this year we’ve heard rumors of possible takeovers from Wyndham, IHG, and Hyatt. We’ve even heard about the possibility of Chinese investors buying Starwood, which would have almost been my preferred option, as it gave Starwood the best shot of continuing to be run independently.
Well, this came out of left field, as it has just been announced that Marriott will acquire Starwood in a $12.2 billion deal, making Marriott the largest hotel chain in the world.
Here are the basic details of the takeover, per the Marriott press release:
Marriott International, Inc. and Starwood Hotels & Resorts Worldwide, Inc. announced today that the boards of directors of both companies have unanimously approved a definitive merger agreement under which the companies will create the world’s largest hotel company. The transaction combines Starwood’s leading lifestyle brands and international footprint with Marriott’s strong presence in the luxury and select-service tiers, as well as the convention and resort segment, creating a more comprehensive portfolio. The merged company will offer broader choice for guests, greater opportunities for associates and should unlock additional value for Marriott and Starwood shareholders. Combined, the companies operate or franchise more than 5,500 hotels with 1.1 million rooms worldwide. The combined company’s pro forma fee revenue for the 12 months ended September 30, 2015 totals over $2.7 billion.
And here’s a handy diagram they made regarding the takeover:
On one hand I’m devastated to see Starwood taken over in any capacity, since I love them as an independent brand. That being said, to try and be as unbiased as possible:
This takeover is a smart move, in theory
The reason Starwood has been underperforming is because they’ve been lagging the competition when it comes to limited service properties. They have nearly a dozen hotel brands, but very few of them are limited service. Instead they mostly have “lifestyle” brands, which means they’re missing out on a big portion of the market.
Marriott, on the other hand, does really well in the limited service market (they have Courtyard, Residence Inn, Fairfield Inn, etc.), and also does well with more “traditional” brands.
So this does seem like a better fit for Starwood than Hyatt, in my opinion, where I really didn’t see any synergies, given that Hyatt also doesn’t do very well in the limited service sector.
Still, the “new” Marriott will have a total of ~30 brands, which is sort of insane. I can’t keep track of the brands from just Starwood or Marriott, let alone their combined brands.
What does this mean for Starwood Preferred Guest?
I obviously can’t offer any useful financial analysis on the takeover since that’s not my area of expertise, though I can opine on what this means for the future of their loyalty programs.
Both Marriott Rewards and Starwood Preferred Guest have very loyal followings, so what’s going to happen to the two programs?
- If there will be only one surviving program, I suspect it will be Marriott Rewards, given that it’s more than twice as large as Starwood Preferred Guest
- The transaction is only expected to close in mid-2016, so nothing will change overnight; no need to panic or hurry to burn your points
Obviously Marriott Rewards and Starwood Preferred Guest are considerably different programs. Their elite benefits are different, their points earning structures are different, and the value of their points are vastly different (I value one Starwood Preferred Guest point at roughly three Marriott Rewards points).
Nothing is going to change overnight, and I sure hope that in half a year Starpoints aren’t converted into Marriott Rewards points at a 1:1 ratio.
So how could this play out?
- It’s possible that both Marriott Rewards and Starwood Preferred Guest will continue to exist independently, much like there’s Ritz-Carlton Rewards and Marriott Rewards, even though Ritz-Carlton is part of the Marriott portfolio. There could be separate elite benefits at Starwood and Marriott properties, and they could continue to be operated somewhat independently, with some reciprocal benefits between the two groups.
- It’s possible Starwood Preferred Guest will be merged into Marriott Rewards, and perhaps a few Starwood elite benefits will trickle their way into the Marriott Rewards program. If this is the case I think we can say bye-bye to suite upgrades, as many Marriott properties have very few suites. My hope would be that Marriott at least learns a thing or two from Starwood when it comes to how they treat their guests.
- While I wish it were the case, I think it’s highly unlikely that Starwood Preferred Guest will be the surviving loyalty program. Even though I don’t personally consider Marriott Rewards to be especially rewarding, there’s no denying that they have a larger member base and also score quite well in terms of member satisfaction. I suspect they’ll take the “if it ain’t broke, don’t fix it” approach.
From a business standpoint I “get” this takeover. There are synergies between the two hotel groups, unlike some of the past potential takeovers we were hearing about. However, as a loyal SPG member, I’m kind of sad to see what will ultimately likely translate into the death of Starwood Preferred Guest.
We’ve seen what less competition has done to the airline industry, and I have no reason to believe it’ll be any different for the hotel industry. I wouldn’t be surprised if this leads to further consolidation among the remaining “major” hotel chains.
How do you feel about Marriott taking over Starwood, and what do you think it means for their loyalty programs?