What Would it Mean for Starwood to Acquire Another Chain.. Or Be Acquired?

When IHG swallowed Kimpton, I wrote:

“I want to be an IHG Rewards Club Platinum” said no Kimpton elite member, ever.

Conventional wisdom is that Starwood is going to do a deal, and the most likely candidate is IHG. Some say Starwood could buy IHG. I could see IHG buying Starwood. IHG is the bigger hotel chain, though Starwood’s market cap is much higher (nearly $15 billion versus ~ $10 billion).

Starwood has struggled to generate growth and Wall Street isn’t happy. Fundamentally that’s why their CEO Frits van Paasschen was out in February.

  • The Sheraton brand, which they’ve just announced investments in, is a mess — it doesn’t signal much about the property you’re going to visit, other than a good bed. The quality is all over the map in most of the world (although generally excellent in Asia).
  • Everyone wants a lifestyle brand, and Starwood has a pioneering one in W… that’s hardly growing.
  • They hadn’t introduced a new brand in about 8 years, and none of the most recent ones have been engines of growth. Their new Tribute brand is likely to add about 1% growth per year — if it meets expectations.

Westin is a consistent, quality brand. St. Regis is for the most part but theirs isn’t a segment that’s going to drive growth either.

IF Starwood is going to grow, and as a public company that’s certainly the impetus, it needs to buy someone else (but not overpay!) or get acquired.

They’ve retained mergers and acquisitions advisors. Most of the talk has been marrying Starwood and it’s strength in luxury with a chain that focuses predominantly on lower-scale hotels (like IHG, Wyndham).

My own view is that short-sightedly an IHG or Wyndham deal would excite investors but could be a real mess, with a mess of a customer-facing loyalty program integration (IHG properties have little brand consistency overall in my view) or a bifurcated program which only serves to confuse consumers and limit synergies.

As a customer I certainly would have been happier had Starwood acquired Kimpton (though that wouldn’t be a game changer for them, as it won’t be for IHG) or for that matter if Hyatt had (which had been interested, but wouldn’t pay what IHG ultimately offered).

Whatever deal does or doesn’t happen – and one imagines that a deal of some kind is more likely than not – I’d say that:

  1. In the near-term little will change

  2. Over time the surviving entity will take over and integrate the other chain into its processes.

  3. Consumers will make out fine if it’s Starwood that survives. Whatever chain takes over Starwood will likely lose many of its customers, though existing members will be happy to have Starwood’s footprint at which to redeem their points.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Much smaller but worth much more because Starwood owns hotels while IHG is just a franchiser selling the Holiday Inn, etc. name. What value are the IHG names to Starwood??? Makes no sense.

  2. I just hope they dont eliminate the 5K bonus for every 20K points transferred to airlines.

  3. @AH – That depends on who’s doing the buying and who’s being bought. If IHG buys Starwood, I think it’s a safe bet that not only the 5K bonus goes away, but that the ability to transfer SPG points to miles 1:1 will also go away. If IHG is doing the buying, the final program will look a lot more like IHG than SPG.

  4. Blow it out your a^* Ann…seriously, get a life! If you don’t enjoy the blog, simply don’t follow it. But to critical for the sake of being critical…I’m sure your a real pleasure at your place of work!

  5. Is there a reason why Sheraton, or many major hotel chains in general, are often much better in Asia?

  6. Starwood needs more midscale properties, and InterContinental Hotels bring that in spades–almost 200 of them around the world, including many in markets not currently served by SPG. The other IHG brands offer budget/downmarket properties that also are needed in SPG but which have little brand consistency (as with Sheraton). Over time, those can be weened into more consistent brands, and some can even be shifted into Four Points/Aloft/Element as needed and appropriate–greatly expanding the Four Points/Aloft/Element brands in the doing. With the USA budget/midscale market offering the most profits NOW, the IHG acquisition would greatly expand revenue streams for Starwood both in the USA (Holiday Inn and Crowne Plaza, in particular) and abroad, and would offer Starwood international expansion in a massive way at the same time. It’s ALWAYS easier to acquire a chain than to build or bring in properties piecemeal. Starwood has more to gain by either being acquired by IHG or another chain/fund (thereby giving Starwood investors increased return) or by acquiring IHG (thereby giving investors chances for longterm prospects for growth in the increasingly important budget/midscale sector that Starwood currently is lacking.

    Older, larger brands are always the ones that have the biggest challenges in consistent quality, including SPG’s Sheraton, but also IHG’s Holiday Inn and Crowne Plaza. Asia’s Sheratons (and to a lesser extent foreign Sheratons) are much newer than those in the USA, and therefore tend to be more consistent in brand standards than those in the USA. Sheraton really needs to push its Sheraton hotel owners in the USA to revamp their properties, but that takes a lot of time and money. It’s not like there aren’t some tragically old Hyatts, Marriotts, and Hiltons out there that could use some serious work, either!

    Starwood can acquire IHG and then fold InterContinental into SPG almost immediately…while putting in some time with Holiday Inn, Crowne Plaza, Staybridge, and Candlewood to make them either more consistent before joining SPG and/or to convert some into existing SPG brands like Four Points/Aloft/Element as appropriate. The remaining brands, once more consistent, can join SPG as low tier properties that are so needed in the SPG portfolio.

    If Starwood were to acquire IHG and suddenly have a significantly greater portfolio of hotels, I wouldn’t be surprised to see SPG make the move to the revenue model a bit–with minimum spend requirements for Gold and Platinum to preclude the typical frequent budget hotel guest from achieving status that can be used at the more upscale SPG properties.

    Change is coming. People can whine all the want, but change is the only constant in business. What may happen to SPG, airline transfer of points, SPG Amex, etc. is up in the air…but we can assume that Starwood will leverage its popular program as best it can with the investors caring less about loyalty and more about the stock valuation.

  7. Another key element to a IHG – Starwood merger is the China strategy- together, they would have over 500 hotels in China, and be by far the number one hotel chain there.

    I wouldn’t be surprised to see both Starwood and IHG programs survive a merger- IHG is well structured to appeal to the mass market, while SPG points are a valuable currency that benefits high end customers. The Ambassador program would go away, and you could earn Starwood points at Intercontinentals instead…

  8. The interim CEO of Starwood, Adam Aron has a long reputation in the travel industry. He says he doesn’t want to be a caretaker. Generally Aron has improved every company he has lead. He has started cost cutting. But that could be for selling the company. There is also the inversion possibility with a merger/sale to IHG. If that happened, the SPG program would have to change.

  9. Bill nailed the basic point. Starwood are weak in the mid level and in medium/small markets.

    As much as I like Starwood properties, when I changed companies and my travel shifted from places like Chicago and Atlanta to places like Waco and Lexington, I switched from being a Starwood elite to being a Hilton and Mariott elite. It wasn’t about the product, per se, but about availability.

    An interesting merger could be Hyatt and Starwood, but Hyatt is weak in the middle too. I’d rather see Starwood go after that middle buy building/buying/managing not yet built properties in underserved markets.

    Wyndham and IHG make no sense because, for every Wyndham or Crowne Plaza, there’s 10 Holiday Inn Express or Day’s Inn, which have little or no customer crossover with Starwood’s portfolio.

  10. tassojunior said: “Much smaller but worth much more because Starwood owns hotels while IHG is just a franchiser selling the Holiday Inn, etc. name. What value are the IHG names to Starwood??? Makes no sense.”

    Not quite.

    Do you realize that Starwood only owns (or owned) a very small percentage of the hotels in its system? A Bloomberg article from April 4, 2013 pointed out that (at the time), Starwood owned 42 hotels out of approximately 1,150 in its system, had sold at least 6 hotels in the prior year, and was planning to sell more hotels ($2 to $3 billion worth) over the following 2 – 3 years.

    Starwood’s objective was to increase its hotel-management revenue to a higher percentage of their total revenue. Seems like buying another hotel chain could help with that too.

  11. Would hate to see IHG take over Starwood based on all the issues I’ve had with the IHG Rewards program and the relative worthlessness of Plat status, which with SPG has real value. In the airline world, we’ve actually seen the smaller company take over the larger one (CO>UA and US>AA). Thus far the former merger has been a disaster, the latter is still working its way through though it appears the superior FF program (AA’s) is intact.

    I agree Sheraton is the weak link in the Starwood portfolio as within NAmerica there still is a huge variation among this brand’s properties (as I found with Hilton a decade ago).

    Suppose we’ll have to wait and see how this one works its way out on Wall Street.

  12. I’ve been an IHG Royal Ambassador for many years. The treatment I receive is the best, with the InterContinental Hotel in Frankfurt my second home for many years. The same in Shanghai, Tokyo and Singapore. I’d hate to see any changes, as I’ve never been fond of Sheraton and SPG properties.

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