Scott Mayerowitz recapped Starwood’s earnings call noting that Starwood CEO Adam Aron expects a sale by the end of the year.

Starwood Hotels is nearing a deal to sell the company or merge with another hotel chain, its CEO said on an earnings call Wednesday.

“This has the company’s highest attention,” interim CEO Adam Aron said. “Our clear goal is to optimize the value for our shareholders.”

…”Our progress is active and nearing conclusion,” Aron told investors Wednesday afternoon. He wouldn’t comment on any specific deal, but said: “I would be surprised if we don’t have answers to these questions by the end of this calendar year.”

Chairman’s Suite Living Room, Westin Stonebriar

This morning I noted that Hyatt was rumored to be near an agreement to acquire Starwood. It would be interesting to see Adam Aron — who created the Gold Passport program as Hyatt’s Chief Marketing Officer — ultimately sell Starwood to his former employer.

For customers this would be the best possible outcome of any of the deal combinations Starwood is rumored to have looked at. I like this better than Wyndham, IHG, or Accor. For Hyatt and Starwood it’s not as clear how well an acquisition fills strategic gaps, however.

• Starwood’s biggest gap is in select service. That’s why the Wyndham/IHG/Accor narratives all made sense, Starwood’s luxury complements the strength of those brands. Hyatt sees future growth in select service, and would be buying a chain that’s weak there. Starwood isn’t growing, which is why the markets want a sale. A Hyatt acquisition doesn’t change that.

• This would give Hyatt more strength in Europe. It would make them a bigger player in Asia. It doesn’t give them presence in smaller markets, and they’d still be 1/3d the size of Marriott/Hilton/IHG.

• Hyatt would be buying a lot of similar brands rather than filling clear strategic gaps. Ultimately there’s a ton of similarities between Park Hyatt and Grand Hyatt on the one hand, St Regis and Westin on the other… Hyatt and Sheraton… Andaz and W… They will have a lot of brands that are harder to distinguish than they are now.

I just don’t see how this makes sense for Hyatt. Starwood doesn’t become a more valuable asset once Hyatt owns it, since they still have gaps in smaller markets and Starwood’s gaping hole in select service isn’t solved either. That suggests to me that if Hyatt is the winner bidder, they’ve probably overpaid.

Overwater Villa at the Park Hyatt Maldives

Still, it’s better for consumers than pretty much any other tie-up that Starwood might do. When IHG bought Kimpton I wrote “I want to be an IHG Rewards Club member, said no Kimpton guest ever.” We don’t have that problem here, although lots of questions would exist about how the chains combine.

Make no mistake, Hyatt-Starwood isn’t a net positive for consumers relative to the status quo. As a consumer I want Starwood and Hyatt competing for my business (I choose to stay at least 50 nights with each) and I want each chain’s co-brand credit card doing the same.

Nonetheless a Starwood-Hyatt tie-up would be amazing because it’s better than the world of likely alternatives being discussed for Starwood. It’s better than blowing up SPG, which would always be my worry with Wyndham or IHG.

There would be many questions to be resolved:

• Which loyalty program survives?
  
• Which benefits change? (confirmed suite upgrades, points transfers to miles especially)
  
• How would points combine from one program to the other?
  
• How do the hotels integrate into existing portfolios (do they keep all the brands)?
  
• What do the credit card co-brand deals say about change in control?
  
• Though Hyatt is said to remain in charge, which executives from Starwood remain in place?

I’ve long said that the smaller hotel programs need to be more generous than the larger ones, since you can walk down a street and wander into a Marriott, Hilton, or IHG property almost by accident while it takes work to be loyal to a niche player. Post-acquisition Hyatt would still be much smaller than those three so I don’t worry that they’d be too big not to need to be generous any longer. In fact they could create a single player large enough though that they’d on net increase competition in the upscale market segment.

Pool at the Hyatt Place Delray Beach

If this deal is announced I will be very curious to hear what Hyatt sees as the synergies created, since other than tripling their size I’m not sure how there’s greater value as a result of the combination versus leaving the two chains independent.

As for Chinese offers for Starwood, I wonder how real those, how likely a Chinese state entity is to spend $15 billion when they’re bleeding foreign reserves as they enter their own delayed Great Recession. Or is the mere possibility of Chinese offers a stalking horse to encourage Hyatt to close?