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Hotel Stocks to Bet on Post Blockbuster Marriott-Starwood Deal

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Starwood Hotels & Resorts Worldwide Inc.HOT and Marriott International, Inc.MAR recently approved a definitive merger deal that will create the world's largest hotel company by combining both these hoteliers. On completion, the combined entity would operate or franchise more than 5,500 hotels with 1.1 million rooms worldwide. The deal is expected to close in mid-2016, subject to certain regulatory approvals.

Per the stock-and-cash transaction, Marriott will pay $12.2 billion to Starwood, including $11.9 billion stock, based on the 20-day volume weighted average price (VWAP) as on Nov 13, 2015. The rest ($340 million) will be in cash, based on roughly 170 million shares of Starwood outstanding as of Sep 30, 2015.

Starwood shareholders would receive 0.92 shares of Marriott common stock and $2.00 in cash for each Starwood share they held as of Sep 30, 2015. Post completion, Starwood shareholders would own around 37% of the combined company.

Separately, Starwood shareholders will receive a sum from the spin-off of the Starwood timeshare business and proposed merger with Interval Leisure Group. The spin-off will have to be completed prior to the Marriott-Starwood merger closing.

The deal, on closure, will result in significant cost synergies for the combined entity. Marriott expects to witness at least $200 million in annual cost savings in the second year after closing as well as earnings growth, excluding the impact of transaction and transition costs.

Marriott's move to buy Starwood shows that the hospitality industry thrives on such blockbuster deals that are critical to their success at a time when online booking is becoming a key player in the lodging business. Larger hotel companies, boasting economies of scale, can bargain with online travel agents for better fees like Expedia Inc. EXPE , TripAdvisor Inc. TRIP and The Priceline Group Inc.'s PCLN Booking.com.

Additionally, with technology playing a crucial role in hotel booking, the combined entity would be able to leverage its resources in a more profitable manner. Both these hoteliers carry a Zacks Rank #3 (Hold).

Although "size matters," we believe that there are relevantly smaller hotel companies carrying a Zacks Rank #1 (Strong Buy) or #2 (Buy), and have solid growth prospects.

Belmond Ltd.BEL

Founded in Jun 2014, and based in Hamilton, Bermuda, Belmond Ltd., together with subsidiaries, engages in the hotel and travel businesses. It owns, invests in, or manages deluxe hotels and resorts, restaurants, tourist trains, cruises and canal boats.

The company owns and operates unique and distinctive hotel, rail and river cruise experiences in many of the world's most celebrated destinations. From city landmarks to intimate resorts, the collection includes Belmond Grand Hotel Europe, St. Petersburg; Belmond Copacabana Palace, Rio de Janeiro; Belmond Maroma Resort & Spa, Riviera Maya; and Belmond El Encanto, Santa Barbara. Belmond also encompasses safaris, six luxury tourist trains including the Venice Simplon-Orient-Express, three river cruises and '21,' one of New York's most storied restaurants. The company carries a Zacks Rank #2.

Intrawest Resorts Holdings, Inc.SNOW

Headquartered in Denver, CO, Intrawest Resorts Holdings operates as a mountain resort and adventure company which delivers vacation and travel experiences The company is also involved in adventure travel business as well as real estate business, through which it manages, markets and sells vacation club properties; condominium hotel properties; and residential real estate. The company carries a Zacks Rank #2.

China Lodging Group, LimitedHTHT

Headquartered in Shanghai, the People's Republic of China, China Lodging Group is an economy hotel chain operator. The company offers hotel products under three brands that are designed to target distinct groups of customers. The company's brands are HanTing Seasons Hotel, HanTing Express Hotel, and HanTing Hi Inn. The company sports a Zacks Rank #1.

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STARWOOD HOTELS (HOT): Free Stock Analysis Report

EXPEDIA INC (EXPE): Free Stock Analysis Report

PRICELINE.COM (PCLN): Free Stock Analysis Report

MARRIOTT INTL-A (MAR): Free Stock Analysis Report

CHINA LODGING (HTHT): Free Stock Analysis Report

TRIPADVISOR INC (TRIP): Free Stock Analysis Report

BELMOND LTD (BEL): Free Stock Analysis Report

INTRAWEST RESRT (SNOW): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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