Marriott International Inc. (MAR) is going to buy Starwood Hotels & Resorts Worldwide Inc. (HOT) in a deal that will create the world's largest hotel chain. The merger should offer a wider choice of brands to consumers, improve economics for owners and franchisees and increase unit growth.
Marriott will have great presence in markets outside the United States since the combined company will own or franchise more than 5,500 hotels with 1.1 million rooms worldwide.
About Marriott International
The company is an operator, franchisor and licensor of hotels and time share properties under different brand names. It also operates, develops and markets residential properties and provides services to home/condominium owner associations.
Marriott has been working to create a complete and effortless online and mobile-powered travel experience for its guests and boost its growth. Earlier this month Marriott and Alitrip, previously known as “Taobao Travel,” started a move that would make it easier for travelers to book hotel rooms online and on their mobile phones.
Third quarter results
The company reported solid results for the third quarter in which worldwide comparable systemwide RevPAR rose by 4.5 %; it also reported 20% growth for diluted EPS versus the prior year quarter. Adjusted EBITDA had a 10% increase and adjusted operating income margin increased to 49% compared to 43 % over third quarter 2014.
The company repurchased 9.8 million shares of the company’s common stock.
Outlooks
For the full year 2015, Marriott is optimistic about future growth, and it expects to return more than $2.25 billion to shareholders, which will be a record for company that would bring its total return to shareholders to nearly $8 billion over the last five years.
Considering Marriott’s strong development pipeline, it expects the number of rooms will increase 7% to 8% in 2015. It expects a 6% reduction in general, administrative and other expenses in 2015 compared to 2014 expenses
The company expects full year 2015 fee revenue to have a growth of 9% to 10% compared to 2014 fee revenue.
Its newest brand, Delta Hotels, expects to open its first U.S. property later this year, a conversion from a competitor’s brand.
About Starwood Hotels & Resorts Worldwide
It operates as a hotel and leisure company and conducts its hotel and leisure business both directly and through its subsidiaries. The company manages and operates its hotel business in three separate hotel segments: the Americas, Europe, Africa and the Middle East ("EAME") and Asia Pacific.
The deal with Marriott provides the greatest long-term value for its shareholders from ownership in one of the world’s most respected companies, with vast growth potential further enhanced by cost synergies. Also it will bring the strongest and most certain path forward for the company.
Third-quarter results for Starwood Hotels & Resorts Worldwide
The company had 74 cents in earnings per share (EPS) compared to 66 cents in the same quarter of a year before.
Net income was 53 cents per share compared to $109 million and 59 cents per share in the third quarter of 2014.
During the last quarter Starwood's vacation was bought by Interval Leisure Group Inc. (IILG) to make a more diversified and recurring revenue mix for Starwood shareholders through a vertically integrated time share and exchange business.
Outlook for Starwood Hotels & Resorts Worldwide
EPS is expected to be approximately 76 cents to 82 cents and adjusted EBITDA is expected to be approximately $300 million to $315 million which is more than the third quarter adjusted EBITDA of $294 million.
Competitors
Based on the market cap, the main competitors of Marriott are Hilton Worldwide Holdings Inc. (HLT) and InterContinental Hotels Group PLC. (IHG).
Hilton Worldwide is trading at higher P/E ratio of 32.45 compared to 23.52 for Marriott and 24.76 for InterContinental.
Compared to these competitors Marriott has a smaller one-year earnings growth rate of 29.50% while Hilton Worldwide has 36.40% and InterContinental has a great one-year earnings growth of 124.30%. Wyndham Worldwide Corp. (WYN) that is now trading with a P/E ratio of 16.53 has a yearly EPS’ growth rate of just 10.10%.
Hilton Worldwide Holdings can be considered as a common competitor for Marriott and StarWood Hotels. It also has strong third quarter results with adjusted EBITDA which exceeded the high end of guidance and the fundamentals of its business remain strong. For the fourth quarter and full year 2015 the company expects growth for diluted EPS and adjusted EBITDA.
Last quarter trades
During the last quarter Ken Heebner (Trades, Portfolio) bought new shares of Starwood Hotels & Resorts and Marriott.
Tom Gayner (Trades, Portfolio) increased his stake in Marriott by 2.82% and Arnold Schneider (Trades, Portfolio) reduced his stake by 71.99%.
John Paulson (Trades, Portfolio), Ron Baron (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio) increased their stakes in Starwood Hotels & Resorts while the stock got new positions in the portfolio of Chris Davis (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio). The only guru who sold out his stake has been Leon Cooperman (Trades, Portfolio).
Main guru shareholders
Brian Rogers (Trades, Portfolio) owns 1.02% of Marriott and Mario Gabelli (Trades, Portfolio) has a 0.14% stake.
Tom Gayner (Trades, Portfolio) is Marriott’s largest shareholder among the gurus with 0.55% of outstanding shares. Ken Heebner (Trades, Portfolio) holds 0.32% of outstanding shares while Arnold Schneider (Trades, Portfolio) has a 0.04% stake.
John Paulson (Trades, Portfolio) owns 9.23% of Starwood Hotels, Ken Heebner (Trades, Portfolio) holds 0.36% of outstanding shares while Ron Baron (Trades, Portfolio) has 0.33% of stake.
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