Marriott International and Starwood Hotels & Resorts hosted a conference call on Monday after they announced the news that Marriott was acquiring Starwood for US$12.2 billion, consisting of US$11.9 billion in Marriott stock and US$340 million in cash.
The discussion was filled with insights not included in press releases and often based on questions coming from analysts on the call. Here are some of the more interesting excerpts from the two company’s executive teams as well as answers to questions.
Opening remarks from Marriott CEO Arne Sorenson:
“Our success has been driven by our ability to anticipate market shifts and meet those changes head on.”
“When we look at Starwood, we see many aspects of its business that complement what we have built at Marriott, including its focus on lifestyle brands, ability to attract Next Gen travelers and its broad international presence. We will do great things together as the world’s favorite travel company.”
Opening remarks from Marriott CFO Carl Berquist:
“Our integration philosophy is straightforward. We expect to choose the best from each company… systems, designs, operations, and talent. Our similar organization structures should help to integrate the work more easily. We will seek to limit property-level disruptions by retaining on-property systems whenever possible. We have plenty of M&A experience to draw on, which we hope will minimize integration costs.”
Sorenson responding to a question about “fixing” the overall performance of the Sheraton brand:
“We’ve had a chance to look at that but it won’t surprise you to hear that we really haven’t had a chance to sit with the Sheraton brand team, as an example, or dig as deeply into this as we certainly will in the months ahead. But I think generally the notion that the better hotels, the hotels that get enough capital to become better hotels, get the Sheraton Grand branding I think is the right idea.
“Obviously we’ve got to make sure that the brand centers for the core Sheraton brand make sense. And I think we’ve got to have the resolve to make sure that the hotels that don’t meet those standards leave and don’t remain in that brand. I think with those things we should be able to drive continued improvement in that.
“Sheraton, you know, it’s one of those brands if you look at it over the course of a number of decades you see a brand that has traded at basically at fair share or a bit below year after year after year and, notwithstanding that, it has grown. And we think it’s got both growth potential in terms of its index and would seek to move that up more into the range of the other brands and good growth development
Sorenson responding to a question about why Marriott used so much equity to acquire Starwood:
“Because we’re using stock we have not levered up our balance sheet. And so whether you think about economic cycles or you think about geopolitical events or you think about something else we’re not taking on incremental risk for the company.
“But we are getting the benefit of the synergies that we think we can drive, not just on cost but on the revenue side which should help us on the upside perform reasonably better than we could perform by ourselves.”
Starwood Chairman Bruce Duncan on why it made a stock deal:
“We think this is a game changer. We think when you look at this stock that it’s the go-to stock. If you look at how Simon is the go-to in the mall business, you look at Prologis is industrial, this will be the go-to stock in the hospitality business.”
Sorenson in response to a question about potential owner concerns weighed against scale advantages:
“I think for the same reasons that we at Marriott and Starwood believe that there is value that can be created by putting these platforms together, I think our owners and franchisees will understand exactly the same thing. And that is both going to be what can we do on the revenue side with the powerful loyalty programs that we have with the ability to spend money on technology and marketing that we think we can do more cost effectively by being bigger and of course on the cost side.
“So whether you look at cost per reservation coming out of our call centers or our dotcom platforms or you look at procurement and the larger buy that we will have and therefore the better leverage we’ll have to negotiate that or the need to develop only one revenue management system for example or maintain only one revenue management system as opposed to multiple systems, we’ll find that there are cost advantages to not just the owners and franchisees of Starwood hotels but to the owners and franchisees of Marriott hotels as well. So we would expect generally for this to be positively received. Obviously with 5,500 hotels we’ll have some number of owners who don’t like it for one reason or another and we will work through that as best we can with them.”
Starwood Interim CEO Adam Aron responding to a question about why US$72 a share is a great price for the Starwood shareholders:
“The consideration of this transaction is much higher than US$72 a share. There are really four components to this transaction.
“We’ve got the Marriott shares that will be coming to our shareholders. We have US$2 in cash per share coming to our shareholders. We in addition will have the considerable value of the Vistana spinoff and sale to Interval Leisure Group.
“All of that is detailed in the press release. And we have to emphasize that Starwood shareholders will own 37% of the combined company and therefore Starwood shareholders are going to get 37% of the combined cost synergies, the combined revenue synergies, the growth prospects of both companies, and remember that Marriott has been a fast-growing Company for a long time.
“Tom Mangas (Starwood CFO) and I have been talking to our shareholders all year long. We think we have a very good insight into their views as to what should happen with this business and we think that our shareholders are going to be quite pleased with this transaction.”
Sorenson responding to a question about how the Ritz-Carlton and St. Regis brands will evolve:
“Particularly from a global perspective we think the future for luxury is very strong. And so with Ritz-Carlton, Ritz-Carlton Reserve, Bulgari, EDITION, in the Marriott portfolio, Luxury Collection, St. Regis in the Starwood collection of brands we think will have industry-leading brands in this space and we think every one of them has significant growth potential. We’ll work in making sure we’ve got all those brands aligned in a way that makes sense to customers.
“I think Ritz-Carlton and St. Regis would be the biggest of those brands that I’ve just mentioned the five of them. Or I guess Luxury Collection is a little bit bigger, isn’t it?
That we’ll stay focused on and make sure we draw consumer-facing distinctions between St. Regis and Ritz-Carlton over time. Stay tuned for that. I can’t explain exactly how that will go now. But I think all these entrants we intend to keep and we intend to grow.”
Sorenson responding to a question about what changed Marriott’s mind about making this deal after twice rejecting the notion:
“I think the second thing that changed, over the course of those seven months we’ve become I think more impressed by what we can accomplish by being bigger. And whether you look at what some of the OTAs have done by consolidating in their space, entering into tangential spaces for them, whether you look at the Alibabas and Googles of the world and what they are trying to do in the travel space, whether you look at the home-sharing sites and the way they are trying to get in, watching all of that we became more convinced that strategically we could drive better value and compete better by being bigger. And that really starts with things like the loyalty programs, things like the technology spending that we’ve got to do.
“And by being bigger we have more resources to do that cost effectively and to prioritize in a way that will really help us compete. So you put those two things together and the final strokes of this deal came together very, very quickly. That’s not because we were starting from zero exactly because we had done the work months before and we had spent time talking about it.
“But we jumped in and thought this was a compelling transaction if we could get it done on the terms that we’re announcing today. And we are absolutely convinced that there is enormous value that we can create for our shareholders in the years ahead.”
Sorenson responding to a question about folding the two loyalty programs together and the added value of the combined program:
“We will take the best of both these programs and make sure that those bests are preserved and the program is enhanced.
“We do have a number of very interested third parties, so each of those two programs has significant credit card partners, each of them has significant timeshare partners. And then we’ve got lots and lots of other partners, many of whom are shared whether that be airlines or others who are participating in the programs.
“We’ve got to involve those partners in the process. We’ve got to assess the way the technology works but we’re optimistic that we can find a way to bring those programs closer together and drive that much more power from them. Bigger group of loyal guests obviously but also a deeper relationship with all of those guests.”
Sorenson responding to a question about how the upper upscale portfolio will evolve over the next few years, and how the Sheraton or Westin products provide something differentiated versus Marriott’s existing portfolio domestically:
“Westin is obviously a smaller brand than Sheraton and Marriott, and is a strong brand which we think can continue to grow right in the space that it’s in. We talked about Sheraton a bit and the Sheraton Grand sub-branding for the better assets and the need to cull the bottom end of that brand if you will.
“I think the Marriott brand will continue to perform well. I wouldn’t see us changing the positioning of Marriott Hotels & Resorts brands and that they are in a fairly distinct place. They are certainly in a different place in terms of performance.
“Beyond that you get to Le Meridien and Renaissance. Those are brands, which are competing in a fairly near place it seems to me. And so we’ll want to see whether or not — what the right approach is exactly between those two brands. And we don’t really have the answers to that yet. Again we need to get the Meridien team their advice, we need to get the Meridien owners also to tell us what their perspective is about things.
“Then you end up with Autograph, which is a very strong, and Tribute which is Starwood’s very recent entry into this Collection space. They obviously just did a big deal in Las Vegas last week, which they announced. We’ll see where those brands go.
“But I think generally with the exception of a couple of points I just made we think the brands in the upper upscale space will continue to perform with the rough positioning that they have today.”
Sorenson responding to a question about how putting these two companies together could be a shock to the system and whether there is an opportunity to remove a brand from the system:
“We’ll have to do the detailed work to make sure we can be definitive here but philosophically we think there’s a place for these brands all to be within the portfolio.
“While this is a big deal obviously among the biggest deals in our industry ever and we’re going to learn some things as we go through this process, I think one thing that’s important to recognize is nobody has really broken up portfolios of brands before and we think there are lots of challenges in trying to break up a portfolio of brands. So it’s one of the reasons that causes us to approach this as keeping things and making them stronger and building on them.
“In terms of unanticipated risks other than the arm’s length list of conditions that are put forth in the press release, there’s nothing really that we anticipate here. We do think there will be a lot of work to pull these companies together and that work we’re going to try and undertake as quickly as we can by having both teams work together and move to pull the platforms together as quickly as we can and drive the synergies as quickly as we can.
“And it would be foolish to underestimate the amount of work that is required to get that done. But we think we can do it. That’s blocking and tackling, it’s execution, it’s good planning.
“And with teams of folks in both Starwood and Marriott who are clearly driven to win, and they have been for decades in the case of Marriott, and as long as Starwood has been competing in the case of Starwood, we’re optimistic that those teams are going to roll up their sleeves and say let’s go get it together. And we think we’ll do really well.”