Why Starwood sold?

Old Nov 1, 18, 9:22 am
  #1  
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Why Starwood sold?

Forgive me but after 3 years I still don't the real reason why Starwood sold out.

SPG program is usually considered the best hotel program in the world? And it looks like most people prefer SPG to Marriott here and there . Easy keeping Plat status, more luxury brand...etc. And marriott to be described as all cookie cutter, bland and out of date....or business related.

Though I don't think Marriott is that bad otherwise nobody would stayed there and they would not be able to acquired anybody, most Marriott Brands I've stayed with is up to date and probably better experience than many of spg's Sheraton or Westin that I've stayed before. I still don't understand that SPG as such a popular hotel company , and quote from some member here that they have " more influential " customer.... would be purchased by its enemy Marriott? If SPG is such a great company and having better program and more popular brand such as W, they should making a lot money , to be the leader company in this industry instead to be acquired , right?

I read some article but the reason they indicated that SPG to be sold such as slow growing rate is obviously not the real reason, otherwise Hyatt would be acquired too.

Anyone the what the real problem behind Starwood? Is it losing money? Is Marriott making better in terms of repair or running a hotel and make it profitable?

I've heard a lot of good words of sPG, I would like to know its problem.
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Old Nov 1, 18, 9:54 am
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Why they sold is simple. Profit. Why they sold to Marriott over Hyatt which offered more is a better question. Also, why Marriott bought was simple, market domination. If Hyatt had closed they would have been a much more formidable competitor. We’ll see how shareholder returns shake out in the next few years. I’m personally facing a dilemma as to if u should sell my Marriott stock or not right now. I want my dividend check but I also want my Platinum benefits and those are largely competing forces.
Starwood wasn’t losing money but they were making less of a return than they thought they could make elsewhere and some of the larger shareholders were pushing for a sale. In hindsight, if they had waited they might have gotten more money as RevPAR has continued to climb more than many folks (myself included) would have guessed but also thank god the Anbang deal didn’t close as that would have almost certainly been more of a train wreck than we could imagine.
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Old Nov 1, 18, 10:37 am
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In 2016, to the shareholders of Starwood, the company appeared to be worth more as an acquisition target than as a standalone company.
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Old Nov 1, 18, 11:04 am
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Originally Posted by Horace View Post
In 2016, to the shareholders of Starwood, the company appeared to be worth more as an acquisition target than as a standalone company.
And while there appear to be more legacy SPG fans than legacy Marriott fans on FT, I'm skeptical we are a representative group.

If you google and look at the Starwood Board of Director recommendatiosn and the deal documents, you will see that Starwood's Board believed (a) they were not performing adequately in their market and had lower REVpar on a market basis compared to its peers (NY is compared to NY, not Omaha), (b) they were unable to grow in the most profitable segment of the hotel biz -- limited service -- Four Points/Courtyard/Fairfield Inn, and (c) they had the highest group of elite members in the industry who were splitting their stays between SPG and other brands who had limited service properties in smaller markets. Because they had a lot of brand splitting compared to their peers, they could bring more value to a company that had limited service properties in smaller markets.

So Marriott didn't buy Starwood because of luxury brands, they bought Starwood because Starwood had a lot of program members who were looking for limited service properties in smaller markets.

You won't find any objective source to support your premise. There is no basis for a statement that SPG members are wealthier, spend more on hotels, more influential,more loyal, etc. If that was true, its bizarre that Starwood's Board of Directors and Investment Bankers would not have used that information to drive up the price.

To see why Starwood's Board of Directors put the company up for sale and why the Marriott merger/acquisition made sense, you're best off looking at official documents or financial analysts recommendations rather than FT

https://marriott.gcs-web.com/static-...e-16301a494d0c
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Last edited by C17PSGR; Nov 1, 18 at 11:23 am
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Old Nov 1, 18, 12:22 pm
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Originally Posted by ucfjoe View Post

<snip>

I’m personally facing a dilemma as to if u should sell my Marriott stock or not right now. I want my dividend check but I also want my Platinum benefits and those are largely competing forces.

Nsnip>
Is there some connection between shareholding and status? Maybe I don't understand what you are saying but if there is a backdoor to status through shareholding, that would be interesting.

FWIW
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Old Nov 1, 18, 1:10 pm
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Because a loyalty program is not a major revenue stream, mostly just a cost center. Marriott and Starwood’s core business is to manage hotels and resorts for real estate developers and investors and licensing their brands and know-how. Apparently, Starwood was not very good at that.
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Old Nov 1, 18, 1:43 pm
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Originally Posted by ucfjoe View Post
Why they sold to Marriott over Hyatt which offered more is a better question.
I believe that had more to do with Hyatt's dual share class voting structure, whereby the Pritzker family retains outsized control of the company relative to their holdings. So, SPG rejected their offer because they deemed that shares in Marriott were a more appealing currency than shares in Hyatt.
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Old Nov 1, 18, 2:40 pm
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Originally Posted by C17PSGR View Post
You won't find any objective source to support your premise. There is no basis for a statement that SPG members are wealthier, spend more on hotels, more influential,more loyal, etc. If that was true, its bizarre that Starwood's Board of Directors and Investment Bankers would not have used that information to drive up the price.
If you believe the threads on FT, they were also smarter, classier, and more discerning hotel customers. Apparently the one thing they weren't, in comparison to Marriott customers, is profitable.

Besides all the financial reasons stated above, I suspect this was also a way for Marriott to get some instant exposure in some foreign markets where they didn't have a strong presence, and even more specifically where SPG had some resort properties. I've noticed there are a number of cities outside the US where there is a SPG resort but no Marriott, or only a Courtyard and a full service Marriott. Bottom line, their customers can now stay within the Marriott family in a lot more cities where the revenue used to go to competitors.
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Old Nov 1, 18, 4:12 pm
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Originally Posted by dmunz View Post
Is there some connection between shareholding and status? Maybe I don't understand what you are saying but if there is a backdoor to status through shareholding, that would be interesting.

FWIW
DLM
I believe he refers to the fact that as a shareholder, he is compelled to want the company to be as profitable as possible - platinum benefits cost the company money, so he's compelled to cheer for Marriott to make keeping Platinum harder. Which is hard to reconcile as a Platinum member using those benefits.

My personal take is keep the shares. I get a fair amount of dividend from Air NZ, widely lambasted as having the crappiest FF scheme in the market, yet I still fly with them and I don't feel it's a conflict to want the FF scheme to suck less, even though I financially benefit from the scheme sucking and making the company more profitable.
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Old Nov 1, 18, 4:37 pm
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Originally Posted by JBord View Post
If you believe the threads on FT, they were also smarter, classier, and more discerning hotel customers. Apparently the one thing they weren't, in comparison to Marriott customers, is profitable.
How do you come to this conclusion? Profitable companies are acquired quite often. In fact, more profitable companies tend to be great acquisition targets. Being quite profitable is what caused Marriott to want to purchase SPG.

All it says is that Marriott's valuation of the present value of accretive profitability from the addition of SPG to the company resulted in an offer that was greater than SPG's shareholders' valuation of the present value of future profitability by standing alone.

Acquisition and valuation has absolutely noting to do with a comparison to the present business. If I'm making a million dollars per customer in profit and I can acquire a company that makes half a million in net profit per customer for a cost of only 100K per customer, I'm certainly going to do it. I'll take 2 million customers at 750K per customer profit over 1 million customers at 1M per customer profit any day. I spend money, not margin percentage. $1.5B is better than $1B in my book.
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Old Nov 1, 18, 4:51 pm
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This thread is addressing two separate, but related, questions:

— Why did Starwood sell?
— Why did Marriott buy?

Starwood did not just allow itself to be purchased. Starwood actually put itself on the market:

Starwood Opens Door to a Suitor - Wall Street Journal, Apr. 29, 2015

Initially, Marriott was not intersted in acquiring Starwood. But Marriott came around:

Marriott CEO: Here's Why We Did the $13.6 Billion Starwood Deal - Fortune, May 26, 2017 (includes a video)
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Old Nov 1, 18, 5:48 pm
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This topic has been discussed/hashed to death. Do we really need a new one? Perhaps the mods could merge into an existing thread?

Cheers.
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Old Nov 1, 18, 8:39 pm
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Maybe we can all agree that it would have been better for EVERYONE if Hyatt and Starwood had merged.
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Old Nov 1, 18, 8:56 pm
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Originally Posted by DJ_Iceman View Post
Maybe we can all agree that it would have been better for EVERYONE if Hyatt and Starwood had merged.
I don’t agree with that.
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Old Nov 1, 18, 8:59 pm
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Also, way back when, the preferred merger partner in SPG’s eyes was IHG. Aside from the IC brand, and maybe the Crowne Plaza (depending on your perspective), all of the other brands in the IHG chain were limited service mid tier brands (think Holiday Inn Express). They were pre-Kimpton at that point.

The idea was basically SPG could incorporate IC into the luxury part of the SPG program, develop a common point currency between the two, and then let the mid-tier IHG brands do their thing. Unfortunately IHG wanted no part of the deal... but at that point SPG had already sold the investors on the merger idea. So they had to look to other partners.
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