Yesterday I wrote that 3 Chinese firms were seeking government permission to make a bid to buy Starwood Hotels.
The government approval process, though, could stymie any bid. The government wouldn’t want the firms to bid against each other and raise the price. There also may be a desire not to spend over $12 billion on investments outside the country, when these (fully or partially) state-owned companies are being instructed to try to goose the domestic economy as China enters its own ‘Great Recession’.
Starwood has definitely been on the auction block. Starwood has struggled to generate growth. Fundamentally that’s why their CEO Frits van Paasschen was out in February. Starwood retained mergers and acquisitions advisors.
- Six months ago I speculated on what a Starwood-IHG (or Wyndham) merger would look like.
- Three months ago market excitement ratcheted up over an IHG-Starwood combination, although that culminated in word from IHG that talks ended without a deal — although Starwood remained a potential acquisition target for Wyndham and Accor.
CNBC is reporting that Hyatt is in advanced talks to buy Starwood.
Hyatt Hotels is in talks to buy Starwood Hotels & Resorts in a deal that is said to be as little as a week away, sources told CNBC.
…Talks between the two companies have been going on for weeks.
Hyatt management would take control of the combined company if the deal comes to fruition.
View from the Park Hyatt Sydney
To date most of the tie-up speculation has centered around companies that are stronger in the select service area, where most of the industry sees the biggest area of growth. That’s the biggest growth area for Hyatt, but Hyatt is a small player there relative to Marriott, Hilton, and IHG.
Hyatt made a play for smaller Kimpton but was outbid by IHG. So they’ve been in the mergers and acquisitions market. But swallowing a Starwood acquisition would be a whole different ballgame: Hyatt’s market cap is ~ $7.5 billion while Starwood’s is ~ $13.5 billion.
The reason this would good news for customers is in comparison to the alternatives:
- A Starwood deal with IHG or Wyndham could dilute the brand and the loyalty program.
- Hyatt is strong both in select service and upper-end hotels. Hyatt and Starwood are the two top tier elite status levels I choose to maintain for a reason.
- While I don’t like to see less competition in the hotel space, and I do worry that Starwood Preferred Guest would be the surviving program (only because of lesser earn for in-hotel spend, and the lack of confirmed at booking suite upgrades; though there is risk of loss of SPG’s amazing mileage transfers as well) it makes both programs more desirable with a wider range of properties for earning status and aspirational properties for redemption.
W Union Square
There’s little risk of dilution of benefits to customers. A deal between Hyatt and any other chain or between Starwood and any other chain entails greater risks. So in a world where a deal of some kind is likely to happen I’d place my desires on this one.
From a business standpoint though I’m not sure this solves the growth needs of either company. This doesn’t give Starwood the scale it needs. It would triple the size of Hyatt, although not in the areas where they see the greatest potential. Both chains are heavily invested in China as well.
I actually think this will be a negative for me. SPG has much lower points rates than HYATT (IMHO) and SPG always show far more rooms available for points than HYATT. HYATT always seems to claim standard rooms are not available. I would not be surprised if they gut the program. There goes my lifetime plat with SPG. I guess that is the risk in these sort of things anyway. Also free nights count toward status with SPG. That is not the case with HYATT. I would have to use cash and points redemptions.And I know C & P availability also might be controlled, although I dont have alot of experience with those.
The details of how they merge the programs will be key. The ability to earn mass quantities of UR and then use them to stay at SPG properties will be awesome. However, when SPG properties are folded into Hyatt’s award chart, they will likely be skewed toward the higher categories, in effect devaluing the combined program. Also, if SPG’s existing program dies, then it will be a MASSIVE loss for the ability to transfer points to all their airline partners with the 25% transfer bonus.
I don’t like this prospect at all. Hyatt’s loyalty program is so generous, as you frequently point out, because you have to put an effort into being loyal to Hyatt.
A combined Hyatt/SPG would be so huge that this benefit would go away. Of course, this benefit could always go away (I never understood why Kimpton’s program is so atrociously bad), but this just increases the risk.
I see this as a bad thing. Less cards available to earn a sign up bonus on. Either Amex or Chase is going to lose a card here.
Gary, what do you think the impact would be on the UR and AmEx relationships with the combined Hyatt/SPG entity?
My first thought on seeing this was “crap, I have way more URs than Starpoints, and Hyatt is one of my favorite redemptions.”
Hyatt getting SPG feels a bit like US merging with AA, where the AA relationships won out (Citi over Barclays, AAdvantage over DM, oneworld over Star)… which makes me think the AmEx/SPG relationship would push out the UR/Hyatt one.
AMAZING? Really?
In what world is industry consolidation ever good for customers? Outside of the initial few months to a year before they work out the strategy after combining do you honestly expect the loyalty program to improve?
And of course it doesn’t make any business sense; most mergers fail.
Why do I have the feeling that Starpoints and the associated credit card will go away? The best 1x spend there is.
I think this could be disasterous for Hyatt diamonds.
As you have noted before, hotel programs with smaller footprints, e.g. Hyatt, must amp up their loyalty programs. I doubt it would occur immediately, but in time, I suspect that Hyatt would no longer feel the need to make diamond as special as it is.
The photo is not the Park Hyatt Sydney, Gary. It’s the Sydney Opera House, perhaps viewed with binoculars from the Park Hyatt.
Mixed emotions on this potential merger, as the two best hotel guest programs combined into one makes for less competition and worse benefits. Though perhaps a better outcome than if Starwood were gobbled up by a huge chain or program-indifferent investors.
Another blow for AMEX..
I don’t like these news. I am a big fan of SPG and its program. I will be a contrarian here: Because the points are so hard to get, that is exactly what makes the program so valuable. Less points available overall in the market, more redemptions, upgrades, no black out, free nights, etc available.
Can you imagine the tons of UR points easily accumulated by people becoming SPG? This would mean instant devaluation, less availability, etc. The dilution of the SPG fantastic program. I understand there would be more hotels to redeem the points, but I think I prefer the unknown Chinese company taking over (and hopefully leaving the program the way it is).
I have an award reservation in March 2016 at Al Maha, a property of the Starwood Luxury Collection. If this deal occurs, what will be the implications?
@Erik roughly speaking I wonder what gets you massive quantities of UR points. Do you mean the Office store gift cards? By the way I doubt the SPG/Amex card would be dumped since I am pretty sure that card is a far bigger program than the Chase Hyatt card. The SPG card is heavily marketed and has some big spenders in both a business and a personal card. HYATT is personal card only with Chase.
Consolidation is never a good thing, let alone an amazing thing. Prices will go up and award redemptions will go up. Hopefully it’s something like IHG and Kimpton hotels. Together, yet separate.
@Dave – glad you asked, Dave. I’m sure Hyatt and SPG Execs are wringing hands on how to complete this merger without affecting your award stay in March … Dude – are you freaking kidding me ? The implications are — the implications. You sound like a baby.
AMEX Membership Rewards would be the big loser as they likely will lose the SPG card just like they have lost everything else to the big money center banks like Chase or Citi. Witness, Chase pressuring AMEX to devalue the transfer ratio of MR:BA Avios transfers, the loss of Hyatt, Marriott, IHG and United from MR transfers and the loss of AAdvantage and Costco to Citi.
The only positive I can see is Gary no longer foolishly promoting the AMEX MR and
SPG AMEX card product(s) to the hilt if AMEX loses SPG, although I do think that the poor 1:3 MR transfer to SPG points will survive — that’s throwing a bone to AMEX MR.
Gary, I think I must have misread something. How can a merger be AMAZING from a customer point of view. When I look at the history of loyalty programs during a merger, the end result is always BAD for the customer.
Look at United / Continental. Look at American Airlines and US Airways. Northwest and Delta. The list goes on and on.
For the most part after the merger is finalized, the loyalty program morphs into the worst for both programs. So I would predict
Hyatt/SPG combined Diamond would get
– no confirmed upgrades (Instead up to 10 night ugrades)
– a continental breakfast only AND a max of only 2 people only
– 500 point bonus per stay (instead of 1000)
– a sorry if the lounge is closed instead of 2500 points
– Hyatt/SPG points transfer to airlines at a much lower ratio ie 80k points = 50k airline
– Much higher point costs for the aspirational properties
etc. etc. etc.
Hard to take anything you say seriously for the “Thought Leader in Travel” after reading several of your posts including this one. This is definitely not a good thing to have Hyatt take over SPG. Always bad for consumers when there are less choices.
FOLKS, I think I am clear here that I would rather a standalone Starwood. I just think a Hyatt acquisition of Starwood would be better than the realistic set of alternatives.
Starwood has been shopping itself. There’s been discussions with Wyndham, with Accor, and with IHG that we know about. And there’s word that three Chinese government-backed entities could buy Starwood.
So maintaining an independent Starwood doesn’t seem realistically in the cards. My point in this post is that Hyatt-Starwood would be better than Starwood being run by Wyndham or Accor. We can read into whatever we wish about the hypothetical possibility of a Chinese government takeover based on an offer that hasn’t been made yet and maybe that’s better.
Of course fewer players is worse. I do not disagree in the slightest. But if an acquisition is inevitable, I’m suggesting this version is better than the ones we’ve heard rumblings of so far.
Put another way: I am definitely not saying Starwood-Hyatt combo is better than the status quo. I’m saying status quo appears not to be an option, so this looks least bad.
@robertw Yes, office store GCs are certainly a big way to rack up UR. But Chase also has a wide variety of UR earning cards, lots of bonus categories, and you can get repeated sign up bonuses, whereas SPG only has 2 cards, no bonus categories, and AMEX has the once in a lifetime sign up bonus rule.
I agree that the SPG card is a bigger program than the Hyatt card, but the Hyatt being a partner of Chase is the real issue. It’s hard for me to imagine Hyatt retaining SPG’s award program AND it’s relationship with Chase. If that happened, we would see a massive devaluation within the first year. SPG’s value is only sustainable because the points are so hard to get.
I didn’t realize “least bad” now means “AMAZING.”
From a business perspective this makes the least sense of any of the possibilities floated so far, so I assume that this is the one that will come to fruition, because these takeover targets almost always go to the greatest fool. Does Hyatt really need some more hotels in the relatively few markets that they are already in? One hotel chain with a small footprint taking over another chain with a small footprint that is way too similar.
If Starwood is to merge with any other chain, Hyatt is the best of all options. Not sure why so many are crying foul about this. Starwood is clearly looking to be acquired. Would you rather it be by Hilton or Marriott?
Starwood and Hyatt seem to focus on the same customers and see the value in service, loyalty, and frankly selling an experience. Anyone else would destroy SPG without question. The worst case scenario with Hyatt/Starwood merging is still better than the best case scenario with any other chain.
while I generally support Gary’s viewpoints, in this case “better than” is not equal to “Amazing” – both his words.
Farnorthtrader makes some very good and compelling observations, Jon. I think his is the better argument for a combined entity going forward — not so great as there is too much overlap where they are and not enough where neither exists.
With respect to market segment, an merger/acquisition of SPG into Wyndham makes sense because the former is mostly upper end properties whereas the latter is mostly lower end hotels. Even though there are many Sheraton hotels and they may make up much of the possible rooms in SPG, Wyndham probably would manage this portfolio better as they have greater experience and revenue from doing same.
I’m not saying a tie-up between the 2 entities would be good for rewards program devotees, only that each company complements the other’s weaknesses/strengths.
I don’t know much about Accor so can’t opine on the rumor concerning its possible bid and a Chinese bid has many unknowns.
@DJ
I’m with you on this one. I’m an engineer, I have little patience for marketing fluff. Just play it to me straight, PLEASE don’t embelish.
the timing of this breaking news is interesting if not suspicious.
who would benefit by leaking this information to the media right after the chinese bid report?
i don’t think it’s in hyatt’s interest to leak this when there are other willing bidders.
i can only speculate but the talk between them aren’t going so well after all.
I agree with Gary’s latest post. When my friend was seriously ill it was AMAZING to see some type of progress. Starwood seems ill, someone will buy them, this is the best scenario so far.
I think this merger will go to Hyatt and not the Chinese firms, unless the price gets way too high.
In addition to the potential merger on the hotel side, ILG just bought the Starwood timeshare business and also owns the Hyatt timeshare business, which it purchased last year. ILG now is the exclusive global licensee of three top vacation ownership brands and the license agreement for the Westin/Sheraton timeshare brands looks pretty good for Starwood, which Hyatt is likely buying and under the terms of the license agreement, Starwood will receive an annual base royalty fee of $30 million plus 2% of vacation ownership interest sales, which rolls up to Hyatt once they buy Starwood.
Hyatt now would be getting money for nothing essentially for just licensing their Hyatt name and now the Starwood names to ILG. From a business standpoint, this may be one of the ways they jumped in to this potential merger?
It will be interesting to see how the merging of the two loyalty programs play out and which card company (AMEX vs Chase) wins out in the long term?
Looking at the posts, I note that just one poster seems to understand the difference between “less” and “fewer”. That off my mind, I hope Hyatt wins. The thought of the crappy French chain, Accor taking over would not please us.
And I just got the Hyatt credit card a couple of months ago. Wonder what happens there.
As someone who recently diversified my credit card spend away from SPG Amex to Chase Ink to earn Gold Passport points, I’m not sure where this possible merger leaves me. I’ll end up right back where I started, albeit with more hotels to choose from I guess…but once again at the mercy of a single program.