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Commentary

Starwood Acquisition Strengthens Marriott's Brand Advantage

We think Marriott paid a fair price for access to Starwood’s strong international presence and higher-end luxury brands, writes Morningstar’s Dan Wasiolek.

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Narrow-moat  Marriott (MAR) announced on Nov. 16 the acquisition of narrow-moat  Starwood Hotels & Resorts (HOT) to form the world's largest hotel company, with 5,500 hotels and 1.1 million rooms. We are evaluating the financial impact to our current $68 fair value estimate for Marriott, but do see the deal as strategically positive for the combined companies, positive for narrow-moat  TripAdvisor (TRIP), and negligible for narrow-moat online travel agents  Expedia (EXPE) and  Priceline (PCLN).

Marriott is paying $12.2 billion in stock ($11.9 billion) and cash ($300 million) for Starwood, or $72.08 per share. Additionally, Starwood shareholders will get $7.80 per share from Interval for the time-share segment. Including the time-share segment, that values Starwood at roughly 13 times our 2016 enterprise value/EBITDA multiple (Starwood has more than $1 billion in net debt). Marriott expects $200 million in annual cost synergies by leveraging general and administrative and operating costs, and once factoring that in, the offer price appears fair.

Dan Wasiolek does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.