Marriott International has announced the acquisition of Starwood Hotels & Resorts in a US$12.2 billion deal that will deliver a hotel-operating giant with well over 1 million hotel rooms globally. This creates a very powerful force that puts Marriott head and shoulders above its competitors in scale. What does this mean for owners, guests and Marriott’s competitors? CMS’ Global Head of Hotels & Leisure, Thomas Page, sets out below his thoughts on this surprise announcement.

“Whilst Marriott was always a potential purchaser for Starwood, which had effectively put itself up for sale a few months ago, this announcement has somewhat caught the market by surprise, with no one predicting this as the most likely outcome. Perhaps this was because Marriott was considered to already have the scale to compete effectively globally, especially in the upscale sector where Starwood are also predominantly located with their Sheraton, Westin, Le Meridien and W brands.

It seems difficult to envisage how Marriott is going to distinguish between such a large stable of upscale brands going forwards. Could they consider selling some of the brands to rationalise and keep the ones they feel are strongest?

For owners there are advantages and disadvantages to this merger. The principal advantage is going to be the ability to hook into the most powerful distribution system in the industry, with the combined strength and size of the Marriott Rewards and SPG loyalty schemes. The downside is the increasing imbalance in negotiating power between owners and operators. It may be that some owners - particularly those that have signed up to Starwood’s more hip lifestyle brands, such as W - will query whether the brand can continue to generate the same hype and buzz when that brand is owned and managed by the corporate behemoth that the Marriott/Starwood combination will become.

It is unlikely that many, if any, existing management or franchise agreements will be affected by this deal, as change of control clauses are very rare and even area of protection clauses are often limited to one brand or exclude portfolio acquisitions such as this. But owners, particularly those with older agreements, may want to check their contracts, just in case this deal gives them a free termination right.

For guests, they are unlikely to see much change in the short term, except that members of the loyalty schemes will soon have access to a much wider variety of properties in which to earn and spend their points. They should be aware, however, that there is always the temptation when schemes such as these merge for the company to cut the real value of points in the subsumed scheme when converted. I am not convinced this merger will do much to increase the pace of technological progress, as both companies already had the resources to develop any new technological products that could be considered beneficial to the guest experience.

This transaction is perhaps most worrying for Marriott’s competitors, who may feel somewhat left behind by this announcement. Consolidation amongst the global operators has been talked about for a number of years, but not much has been announced as yet. Rumours have long circled around InterContinental Hotels Group: only as recently as a week ago it had to publicly dismiss rumours that it was in merger talks. Accor are rumoured to be leading in the race to acquire FRHI, which owns the Fairmont and Raffles brands. This seems to be a much more natural fit, with Accor being over-weight in Europe and in the budget and midscale sectors, while FRHI will deliver Accor the critical mass in the upscale and luxury sectors that it has been missing for so long outside France. And Morgans Hotel Group has been looking for a white knight for a long time now to reverse a decline driven by shareholder disputes.

This announcement will only increase speculation and pressure on CEOs at Marriott’s competitors to deliver a ‘game-changing’ transaction for their own companies and keep pace before other forthcoming announcements leave them in the chasing pack.”

The transaction is reported to be subject to anti-trust approvals and likely to complete in mid-2016. But as the US authorities recently approved Expedia’s acquisition of Orbitz, against a negative reaction from hotel companies and in a much less fragmented market, it seems unlikely that this would not get approval."