Yesterday I wrote that 3 Chinese firms were seeking government permission to make a bid to buy Starwood Hotels.
The government approval process, though, could stymie any bid. The government wouldn’t want the firms to bid against each other and raise the price. There also may be a desire not to spend over $12 billion on investments outside the country, when these (fully or partially) state-owned companies are being instructed to try to goose the domestic economy as China enters its own ‘Great Recession’.
Starwood has definitely been on the auction block. Starwood has struggled to generate growth. Fundamentally that’s why their CEO Frits van Paasschen was out in February. Starwood retained mergers and acquisitions advisors.
- Six months ago I speculated on what a Starwood-IHG (or Wyndham) merger would look like.
- Three months ago market excitement ratcheted up over an IHG-Starwood combination, although that culminated in word from IHG that talks ended without a deal — although Starwood remained a potential acquisition target for Wyndham and Accor.
CNBC is reporting that Hyatt is in advanced talks to buy Starwood.
Hyatt Hotels is in talks to buy Starwood Hotels & Resorts in a deal that is said to be as little as a week away, sources told CNBC.
…Talks between the two companies have been going on for weeks.
Hyatt management would take control of the combined company if the deal comes to fruition.
View from the Park Hyatt Sydney
To date most of the tie-up speculation has centered around companies that are stronger in the select service area, where most of the industry sees the biggest area of growth. That’s the biggest growth area for Hyatt, but Hyatt is a small player there relative to Marriott, Hilton, and IHG.
Hyatt made a play for smaller Kimpton but was outbid by IHG. So they’ve been in the mergers and acquisitions market. But swallowing a Starwood acquisition would be a whole different ballgame: Hyatt’s market cap is ~ $7.5 billion while Starwood’s is ~ $13.5 billion.
The reason this would good news for customers is in comparison to the alternatives:
- A Starwood deal with IHG or Wyndham could dilute the brand and the loyalty program.
- Hyatt is strong both in select service and upper-end hotels. Hyatt and Starwood are the two top tier elite status levels I choose to maintain for a reason.
- While I don’t like to see less competition in the hotel space, and I do worry that Starwood Preferred Guest would be the surviving program (only because of lesser earn for in-hotel spend, and the lack of confirmed at booking suite upgrades; though there is risk of loss of SPG’s amazing mileage transfers as well) it makes both programs more desirable with a wider range of properties for earning status and aspirational properties for redemption.
W Union Square
There’s little risk of dilution of benefits to customers. A deal between Hyatt and any other chain or between Starwood and any other chain entails greater risks. So in a world where a deal of some kind is likely to happen I’d place my desires on this one.
From a business standpoint though I’m not sure this solves the growth needs of either company. This doesn’t give Starwood the scale it needs. It would triple the size of Hyatt, although not in the areas where they see the greatest potential. Both chains are heavily invested in China as well.