On Monday when Marriott International shocked the hotel world by announcing its acquisition of Starwood Hotels & Resorts, HOTELS had a chance to speak with Marriott CEO Arne Sorenson to review the deal and ask some questions about what the future will hold for what will become the world’s biggest hotel company with more than 1 million guest rooms.
Here is an excerpt from the conversation.
HOTELS: How does it feel to get this deal done?
Arne Sorenson: We are beside ourselves with excitement. It is going to be great – absolutely great. What we can do with the combined platform is going to be extraordinary. What we can do together to improve the performance of the Starwood brands, both in terms of existing hotels and the growth of those brands, is extraordinary. The increase in global distribution and being able to tap into those global travel trends is very strong. I spent a lot of time today talking about technology and the importance of making sure we get resources freed up to invest as much in technology as we can to drive closer relationships with our customers. I think this transaction allows us to do all those things.
H: What is Mr. Marriott’s response to the deal?
AS: He is absolutely thrilled. He and I went to Stamford (Connecticut) and did a town hall at Starwood’s headquarters. He was right there joining in the welcome and enthusiasm for what we can do.
H: How quickly did this deal come together?
AS: In some respects it took a long time and in some respects the speed was breathtaking. We started participating in this when Starwood began their process six or seven months ago. Now it is seven months later and we have a deal. So in that sense it doesn’t seem all that fast. But if you think for many of those months we were actually not actively looking at it. We had practically decided it was something we were not going to go after aggressively. It was really in the last month when we jumped in and realized there was an opportunity here which is unique, likely to produce a significant amount of value for our shareholders, and give us some real strategic advantages going forward. We learned it was not too late and put the deal together in a very short period of time.
H: What drove the deal home besides the dip in Starwood’s stock dip and the sale of its timeshare unit?
AS: The other thing was everyday we think more about what is happening in the quickly evolving marketplace in which we compete, and whether it is looking at Expedia’s acquisition of Orbitz, negotiations we have had with some of our third-party providers, or watching new entrants whether it be Google or other players trying to get into the space, it became clearer and clearer to us that being somewhat bigger would be helpful and free up resources to invest in our own technology platforms, by being a bit more relevant to those third-party relationships. It means more than simply leverage in negotiations. It also means where are the places that they can help us create value in a fair way and get a return on it. That sense of the strategic advantages we could get from being this much bigger and better in terms of level of choices for our consumers and the like was the other thing beside the stock price that caused us to jump in and take another look at it.
H: How much was Marriott compelled by Starwood’s more youthful orientation?
AS: There are a number of pieces where we see that they have strengths that compliment ours. One would be in the lifestyle space, generally. Another is their global distribution as they are a bit more global than we are. The other would be, in part because of the lifestyle piece, they pull well among the Xs and Ys. We do, too, as we think we are making a lot of progress in that space, but we think we can build an even stronger presence in that part of the industry going forward.
H: Is the W brand one of the more intriguing growth platforms coming out of this deal?
AS: Yes, W is a strong growth platform, but it is certainly not the only one as we see most of these brands being able to grow quite well going forward.
H: How are you going to fix Sheraton?
AS: On one level if you make it a simple ‘yes’ or ‘no’ question if we can make that brand and portfolio stronger, I think the answer is ‘yes we can.’ We can improve RevPAR performance and accelerate its growth. A piece of that will be finding solutions for the hotels that are pulling the brand down and making sure we get capital into those hotels to get them up to standard. I think Starwood’s use of the Sheraton brand as part of the vehicle for doing that will be a useful tool. But, again, this is something we will have to get into more thoroughly and get owners and franchisees involved to make the right set of decisions. We are a long way from being ready to do that now.
H: How big will impact issues become?
AS: I don’t think there needs to be any impact from pulling these companies together. Their SPG loyalty program on a standalone basis drives essentially half of their business just as Marriott’s program drives half of our business. These are hotels already existing in the market. What we are committed to is trying to make both halves perform better as a result of bringing them together. The feedback I received from owners is uniformly positive today. That is a response to the transaction as a whole and likely system and strategic benefits that can be done.
H: What else will you do to make owners feel loved?
AS: We are very much going to want to pull them into the process to help us make the right decisions at the right speed in the months ahead. They are obviously very interested in these brands – both ours and Starwoods, and we want to make decisions that are going to improve their performance.
H: Do you think this deal is going to cause a chain reaction of industry consolidation?
AS: I don’t know. It’s not as if these deals grow on trees. It will be interesting. I don’t know. I am thrilled we are getting this deal done. Was it required in a sense for the industry to see this get done? I am not sure I’d say that. I am not sure what those words mean, ‘whether we need consolidation.’