COLLEGE PARK, Md. — Host Marriott Corp. will buy 38 hotels from Starwood Hotels & Resorts Worldwide Inc. for about $3.4 billion in a deal that Starwood hopes will free it to build its luxury brands and that boosts Host's upscale and overseas hotel and resort holdings.
The deal announced Monday between the two lodging companies calls for Bethesda, Md.-based Host to give Starwood shareholders $2.33 billion of Host stock and pay $1.06 billion in cash. Host would also take on $700 million of debt as part of the deal.
Starwood, headquartered in White Plains, N.Y., owns and operates brand names including Sheraton, Westin, St. Regis and W hotels. The company is moving toward a model of operating its properties, rather than owning them, an approach adopted by competitors such as Marriott International Inc.
Starwood shares rose 76 cents to $60.02. Host's shares fell 79 cents, or 4.5%, to $16.65.
The sale to Host would account for about 40% of the rooms Starwood owns, but Starwood would continue to manage most of the properties that Host was buying for the next 40 years. Host would pay Starwood management fees, an arrangement that is usually more profitable for lodging companies than owning their own hotels, said William Crow, a lodging analyst with Raymond Jones & Associates.
Starwood Chief Executive Steven J. Heyer said shedding the real estate would allow the company to focus on selling its brands to customers who included younger guests and people seeking upscale amenities. Westin, for example, offers its plush "Heavenly Bed," which has fine sheets and bedding, an idea that has been copied by other hotel companies.
The sale would accelerate "Starwood's transition from a real estate company with some hotel brands to a consumer lifestyle company with a branded hotel portfolio at its core," Heyer said.
For Host, a real estate investment trust that split off from Marriott in the 1990s, the purchase would make it the largest lodging company in the country and the sixth-largest public REIT, with an enterprise value of about $16 billion.
It would also broaden the brand names Host owns. Currently, 70% of Host's properties are Marriott brands. After the deal closes, which is expected in the first quarter of 2006, Marriott properties would represent only about 50% of Host's holdings. It would also give the company a total of 145 upscale and luxury hotels under 17 brands and in nine countries.
As a result of the greater diversity of brands, the company would change its name, dropping the "Marriott" to become Host Hotels & Resorts.