The Marriott/Starwood Merger Could Be A Sign Of More Hotel Deals To Come

Marriott announced on Monday that it will acquire Starwood Hotels in a cash and stock deal worth approximately $75.75 per share. The market seems to be skeptical of the deal pricing, as Starwood’s stock is trading down more than 4.5 percent following news of the buyout.

What’s Behind The Deal?

According to Scott Kim, research director for the Kellner Merger Fund, this deal was likely motivated in part by market pressures from online travel companies such as Priceline Group Inc PCLN, Expedia Inc EXPE and Tripadvisor Inc TRIP.

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“In addition to the rationales stated in Marriott’s press release, hotel operators are trying to gain scale to keep up with the recent consolidation and power of the online travels companies,” Kim told Benzinga.

Patience Required

For arbitrage opportunists who have noticed the rather large spread between the buyout price and the current trading price of Starwood, Kim predicts it could be a long wait before profits are realized. “The deal spread will remain wide since the transaction will require Chinese MOFCOM approval, which generally takes several more months than the US and EU, and the spinoff/merger of Starwood’s Vistana timeshare company."

More Deals To Come

Kim told Benzinga that the Marriott/Starwood megadeal may motivate other smaller hotel companies to pursue deals in the near future, including Wyndham Worldwide Corporation WYN, Hyatt Hotels Corporation H, Choice Hotels International Inc CHH and La Quinta Holdings Inc LQ.

“The industry continues to remain highly fragmented with smaller chains and niche hotels and emerging alternative accommodation operators (HomeAway and Airbnb),” Kim added.

Clearly, Marriott and Starwood aren’t the only companies feeling the heat from the rise of online travel agencies.

Disclosure: The author holds no position in the stocks mentioned.