Dieuwer

Any new Starwood partner should complement the Starwood portfolio. No use to buy a hotel chain that has properties in the same cities as Starwood.

Land-of-Miles

I would much rather see an IHG takeover of Starwood than vice versa. There is a reason why I spend more than double the number of nights with IHG than I do with Starwood. I honestly do not believe there is ever any such thing as a "merger" ultimately one culture predominates.

bhrubin

That's a customer talking (and I agree!)--but that isn't necessarily the same as an investor talking.

The investors will want to find a partner that increases revenue and revenue potential, even if there is overlap in locations. If the overlap is in cities with high occupancy and revenue rates, then that will be considered a plus for investors even as not as much for customers, necessarily.

Obviously, the best case scenario is where Starwood's partner complements the portfolio with hotels in different locations and different hotel property tiers in similar locations. I think IHG and Starwood are a good complement for both in this regard, especially when compared to Accor, Hyatt, and Wyndham.

IHG offers Starwood a tremendous number of domestic budget/midscale properties like Holiday Inn/Candlewood/Staybridge that are the weakest element in the SPG portfolio, but at the same time offers InterContinental properties that are solidly midscale/upscale (and even a few that are luxury) both in the USA and abroad--greatly increasing the scope of the SPG brand line-up internationally. The InterContinental and Kimpton brands would be EASY brand additions to the SPG line-up, and Holiday Inn/Candlewood/Staybridge could either be continued as low SPG tier properties and/or rebranded as needed into the Four Points/Element/Aloft folds. The new IHG Indigo and Even brands could be either expanded or folded into the existing brands as needed.

Starwood's current problem has been the strengthening dollar and decreased business abroad, especially considering the growth in the budget/midscale category that SPG lacks--with its current line-up and growth being so foreign-centric. The IHG group brings TONS of US domestic inventory in the budget/midscale category to help offset that SPG weakness, while the IC and Kimpton brands are obvious, natural fits into the normal scheme of SPG as it exists today. It also positions Starwood well abroad for future growth when it comes, as InterContinental is one the most recognized hotel brands around the world--and there are many in the USA and tons abroad already.

Dieuwer

Forget about the US. It is Europe where Starwood is seriously lacking. Take Amsterdam for instance. No Starwood hotel until the very recent opening of the W!

UA-NYC

I think that would mean the end of the SPG we all know and love. The IC program seems like a mess, with the RA program within a program and all that.

Land-of-Miles

RA is superb though and the core reason why I push so many stays to IHG a new influx of IC's from conversions of the better Starwoods would be really superb.

What is interesting though about any sale if hotel chains is just what is being bought. Isn't it essentially a huge goodwill write off with a stream of management income?

Bravada04

I am not very educated in this and/or the chain of events that MIGHT / MIGHT NOT happen..........In saying that what is the strategy that a person should take with all of their SPG points? This kind of worries me - Should a person start spending them? I would hate to react and blow all of my points.
If in fact a takeover would happen say by another chain what would honestly happen to a persons balance of Starpoints - would they be switched over or would I lose them all??

Canada101

Any entity taking over Starwood is not going to blow the goodwill inherent in the property they were acquiring by doing something to undermine SPG. Don't forget that part of the value that will be assigned to Starwood will be the SPG membership just like part of the value of any airline these days is found in their frequent flier program.

Starwood doesn't offer SPG as some favor to customers but as a competitive tool to drive business to its brands. Starwood is no different than all the hotels, airlines, coffee shops (Starbucks anyone?), retailers (Amazon?) that offer some type of loyalty program.

If, and it is a big IF, Starwood is acquired, whichever entity is acquiring Starwood will need to protect the value of what they are acquiring because the value of SPG will be part of the price they pay in any transaction. And how is the value of SPG determined? It is determined by the number of active members SPG has and the data trove that the program has built up.

Just think about it. SPG knows how we travel, what we like when we travel, how much we spend when we travel and who we travel with. And that's just in the hotel program. They also have all the data from our spending when we use the SPG-linked credit card...how often we go out for dinner and use their card, what utilities we use and how much of it, where we go, etc.

So while any entity acquiring Starwood may tinker with SPG, they won't be doing anything at least in the short term (1-3 years) that would result in members fleeing or choosing other programs over theirs.

Finally, just like in the airline business, as soon as any transaction occurs which involves a merger or acquisition, that also leaves the way open for competing brands like Marriott or Hilton to entice SPG members and/or corporate accounts away. The motivation for Starwood to keep things as good as or make them better for SPG members and/or corporate account is pretty big.

UA-NYC

Multiple counter-points:
1. Reduced competition - there's a reason why most of "us" believe SPG and Hyatt have the best loyalty programs - they're smaller than Hilton/IHG/Marriott, so they have to "try harder". That's not the case in an IHG/*W tie-up.
2. The airlines are a great example - the CO takeover of UA has destroyed the MileagePlus value proposition. Look at the Freddie results versus a few years ago.

I hope it doesn't come to fruition of course...

GAF

As a Starwood shareholder and SPG Platinum I want stock appreciation, but also love my stay benefits.
I feel buying smaller mid-priced chains would be in my best long term benefit.
I wouldn't like Starwood to go too down market.

MarkedMan

Well one counterpoint, and the right one for sure. There is not a shred of doubt that such a merger would lead to devaluation. I have been burning points anywhere I can these days, this tells me it's the right strategy. Accumulate during recessionary times, when giveaways abound, spend during good times when giveaways are much smaller and cash prices higher. And concentration clearly diminishes the need for giveaways anyway.

Hoarding these kinds of currencies for the long haul is like betting snake eyes at craps: looks like great odds until you figure out where the advantage lies

EDIT: just saved myself 800 bucks on a 3-night stay by grabbing a last minute suite on a fab C&P rate and switching it out for my revenue rez which was likely not going to get upgraded. So it begins ...

bhrubin

Europe isn't where the money is, unfortunately--SPG actually performed quite well in Europe (minus the currency valuation issue) and better than Hyatt, Marriott, Hilton, etc. Europe is saturated, so there is less room for growth in Europe for any of the major hotel chains.

That being said, SPG has 217 current properties in Europe--far more European properties than Hyatt, not as many as the 355 in Marriott (but much nicer overall), and not as many as Hilton. But everyone knows Marriott and Hilton are much bigger than SPG--and yet not as nice. SPG also has 28 new properties slated to open in Europe in the coming years.

Amsterdam isn't Europe. Every hotel group has wholes.

bhrubin

Your analysis is wonderful from a customer loyalty perspective. However, none of that matters in the cut and dried world of mergers and acquisitions and investments. Investors don't care about stay quality or loyalty; investors care about getting as much money for their investment as possible.

The fact is that since the recession, budget and midscale properties have been profiting more overall as a sector, and Starwood lacks those in comparison to its bigger rivals. As a result, even though Starwood overall is doing pretty well, investors see that they are not earning as much profits as they could/should be, and THAT is what this current Starwood investment scenario is entirely about.

If investors can earn more money by buying downmarket, then that's where they will try to push Starwood to go. It's just that simple. Where customers want to go isn't a big part of that equation. While CURRENT SPG members love the upscale nature of SPG, that doesn't mean that's where the big money is for the investors who own Starwood.

bhrubin

While I agree there is danger to SPG in a merger with/acquisition of IGH, your points aren't exactly without issue, either:

1. I agree that SPG and Hyatt probably have to try harder because they're smaller. But being bigger doesn't necessarily mean you don't have to try harder--SPG is much bigger than Hyatt, and yet we wouldn't say SPG isn't trying as hard as Hyatt...or that Hyatt is trying the hardest because it's the smallest of the brands in question. In an SPG-IHG merge, the powers that be will either have quality control to ensure brand standards or they won't--and that can be true without the merge, too. Quality of hotel isn't the same as benefits of the loyalty program. SPG might change (I surely hope not), but that doesn't mean the quality of StR, W, LM, etc will change.

Trying harder is also brand-dependent. It's not like StR or W are somehow going to stop trying. Any more than Ritz Carlton stopped trying when Marriott acquired it. Things change.

2. The airlines are not a great example. There are FAR more hotel choices everywhere, the US included. Marriott, Hilton, Hyatt, Starwood, IHG, Wyndham, Choice, Accor, Best Western, Fairmont, Omni, Loews, Omni, FS, Pen, MO, Shangri-La, Taj, Regent, etc--that's a lot of different chains, even if they're not in all markets.

In the US, there are only 4 major airlines, and only 3 major international airlines.

While you look to UA-CO as your example, you can't argue that the DL-NW example completely obviates that to express your parallel. The DL-NW merger is obviously an unqualified success in terms of the metrics you identify--though everyone also agrees that their loyalty program is the worst. As I mentioned above, there is a difference between product quality and product loyalty programs.

Personally, I am not afraid of change...and whether we like it or not, change is coming. That's the nature of business and the world.

SPG may not merge/acquire IHG...but eventually it will merge/acquire something. Who knows what might happen.

Personally, I like the SPG-IHG in principle.

(1) It offers a rapid expansion of SPG to placate investors by giving it the downmarket budget/midscale properties that SPG lacks--which probably is the least attractive element to current SPG customers.

(2) It offers rapid expansion of SPG internationally with many InterContinental hotels--which probably would please current SPG customers. There also are other downmarket properties but that is of less interest to most SPG customers, I assume. InterContinental is a brand everyone knows, and it's the jewel of the IHG portfolio from an SPG perspective. There aren't too many aspirational ICs, but there are a few--and they are a reliably good product in many if not most markets.

(3) It potentially brings Kimpton into the SPG family. I assume most SPG members will see this as a plus--boutique interesting lifestyle properties that appeal to many. That is a plus no matter how you slice it. I suspect Kimpton loyalists would see SPG as a plus over the IHG crown.

(4) It puts SPG into far more markets than it has now. Huge expansion in China. Massive expansion in the USA in smaller markets, especially, that always have lacked SPG presence. Big expansion in Europe. Expansion in Africa to compete with Marriott's Protea purchase. Expansion in South/Central America. Most upscale customers won't care about the USA expansion except for the Kimptons and InterContinentals (including me), but it's still nice to have more choices.

We will see what happens. But I'm pulling for SPG-IHG. The only thing that I'd like more would be SPG-Hyatt...but that doesn't even come close to resolving the investor issues Starwood has.

DenverBrian

He's kinda busy with Starwood Capital Group right now...