What's going on?

Marriott has agreed to buy Starwood Hotels & Resorts in a $12.2 billion deal that will, if completed, create the world�s largest hotel company with over 1 million rooms worldwide! (Interestingly, Airbnb is even larger in terms of number of rooms).

What does this mean?

Starwood is respected for the innovations it has brought to the hotel business, particularly with its popular high-end �lifestyle� brand The W. But it has essentially been trying to sell itself since its CEO resigned in February. Marriott is buying scale and international diversification (e.g. more hotels in developing countries). By becoming bigger, it will be able to negotiate more effectively with internet booking companies like Expedia and Priceline (who themselves are also merging in order to get more scale). The combined company also gets a bigger customer loyalty program that helps it to cross-market between the two companies� chains. Finally, the combined company will�save about $200 million per year in costs that can be eliminated.

Why should I care?

1. The bigger picture: The hotel industry remains very competitive. If this deal goes ahead, the combined company would still only control 15% of the hotel rooms in the US (and an even smaller proportion�internationally). As scale becomes more important when dealing with increasingly important internet booking agencies, for example, more �consolidation� beyond just this deal could result.
2. For stocks: Starwood stock declined, which is sort of strange. Usually the stock of a company getting acquired will go up (and get close to the �takeover� price). Instead Starwood stock sold off 5%. A number of factors could be to blame, including that it is mainly a share-deal (which is�riskier than an all-cash deal since the cash-out isn�t immediate), the recent run-up in Starwood stock price as a result of takeover speculation, and the recent terrorist attacks in Paris (which might hurt short-term profits of international hotel chains).