Marriott CEO: 'Do better by being bigger'

Hotel guests are always seeking bigger rooms, beds and TVs. Marriott CEO Arne Sorenson is giving them a bigger company.

A merger between Marriott International and Starwood Hotels and Resorts will yield the largest hotel chain in the world. With 30 brands and 1.1 million rooms between the two, the combined company will eclipse rival Hilton Worldwide, which has 12 brands and 745,074 rooms, and InterContinental Hotels Group, with ten brands and 727,000 rooms.

Sorenson sees size as a distinct advantage. In an interview with USA TODAY, he said Starwood's lifestyle portfolio, with brands known for cutting-edge design and cuisine, will complement Marriott's, which is stronger in the both the luxury and limited-service tiers.

"We can do better by being bigger," says Sorenson.

Marriott on Monday announced that it has agreed to buy Starwood in a $12.2 billion deal. The boards of directors of both companies unanimously approved a merger agreement. Pending regulatory and shareholder approval, the combined companies will operate or franchise more than 5,500 hotels with 1.1 million rooms worldwide. The deal is expected to close by mid-2016.

A number of companies, including Chicago-based Hyatt Hotels and Resorts and a few China-based operations, had been courting Starwood, according to news media reports, which sent out signals in April that it would be open to a sale soon after its longtime CEO Frits van Paasschen resigned.

Marriott won out because of the strength of its upscale brands and its sheer size, said Bruce Duncan, chairman of Starwood's board, during a call with analysts on Monday. Starwood had considered buying another company, selling or continuing on its own, he said.

"As part of a larger company we will have a more competitive financial position and we will be better equipped to provide long-term value for our shareholders more so than if we had pursued a standalone path or chosen one of the other options we evaluated," he said.

Marriott is expecting that the combined company will realize at least $200 million in annual cost savings starting in the second full year of closing the deal because of operating efficiencies.

Sorenson says becoming a bigger company is the right move because it will allow Marriott to invest more in technology and marketing.

Starwood also appealed to Marriott partly because brands such as W Hotels, Element and Aloft tend to attract younger travelers. Marriott has aggressively tried to target Millennials with the introduction of such brands as AC hotels and Moxy.

The Stamford, Conn.-based Starwood also brings with it a strong international presence that Sorenson says will help Marriott increase its global footprint. Starwood, with its 1,270 hotels, is in 100 countries. Marriott, which has 4,300 properties, is in 85 countries.

"We really like the global platform that Starwood has. We think this is a global industry," he says. "Whether you think of the new group of Chinese traveling abroad or Indians traveling abroad or people wanting to get around and see the world. We think it's good to accelerate our global distribution that way."

Starwood had trailed it competitors in recent years in its brand growth in North America. The company has recently made moves to counteract that. Last week it announced a deal to expand its presence in Las Vegas by bringing the stylish, 1,600-room SLS Hotel on the Strip into its portfolio.

"To be successful in today's lodging space, a wide distribution of brands and hotels across price points is critical," interim Starwood CEO Adam Aron said during the call with analysts. "Today size matters … Marriott and Starwood will have that wide brand and hotel distribution of brands."

Starwood's 11 brands will join Marriott's 19.  Marriott brands include The Ritz-Carlton, Renaissance Hotel, Residence Inn, and Courtyard.

Sorenson says there are no plans to ditch any of the brands, even though some like Marriott's Renaissance hotels and Starwood's Le Meridien serve similar audiences.

"The philosophy is to keep the brands," he says. "Remember these brands are all competing in the marketplace today. This is not a case where someone is thinking of creating 10 new brands ... There may be some places where there will be tweaking or some nipping and tucking but by and large we think these brands can compete well and they belong together."

In some cases, Starwood is already working on revamping some of its brands, in particular Sheraton Hotels.

Other hotel chains may need to consider following Marriott's and Starwood's lead. Some have already started consolidating. Most recently, InterContinental Hotels Group bought Kimpton Hotels and Restaurants, a boutique hotel chain.

"Hilton has such a diverse portfolio of product they don't need to do an acquisition,'' says Scott Kim, research director for Kellner Capital. "But could they? Potentially. . . Choice Hotels or Extended Stay or even Hyatt, those in the mid level, $5 to $10 billion dollar valuations, those companies may need to do acquisitions or even be sold to a larger (company) to increase their inventory of hotels. to either gain leverage during negotiations with the online travel players or offer more on their (own) websites.''

Marriott and Starwood also will have strength in numbers in terms of their loyalty program. The Marriott Rewards program has 54 million members while Starwood Preferred Guest has 21 million.

It will take some time for Marriott to decide whether or not to merge the programs, Sorenson says. But he says consumers should not be worried about losing their points in either program.

"We want to keep the best of both programs and make them stronger," Sorenson says.

Sorenson says that in general, the merger will not impact the guest stay in the near future.

"I think for now, (it's) business as usual," he says. "Our hotels will continue to be operated by the Marriott teams and Starwood teams with the people that are in place."