Seat 2B By Joe Brancatelli
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Business Travel Thinking About the Starwood Battle
March 17, 2016 -- The nattering nabobs of political nihilism may salivate at the thought of an open Republican Party convention this summer in Cleveland, Ohio, but business travelers have our own contested affair: a multinational battle for control of Starwood Hotels and the much-loved elite levels of its Starwood Preferred Guest (SPG) program. When last we left this tale of rooms, revered perks and global lodging suzerainty, Marriott International had swept in at the last moment and snatched Starwood away from Hyatt Hotels. The combination, hammered out in November and due to be approved at shareholder meetings later this month, was expected to create a hotel behemoth with more than 1.1 million rooms, 30 brands and 5,500 properties in 100 countries. Meanwhile, SPG elites, fearful that their lucrative benefits would be subsumed in the blander world of Marriott Rewards, were shopping around for a new chain with which to sleep. As if to mirror the fevered rhetoric of a Donald Trump rally, however, a consortium of Chinese investors appeared on Monday to make a competing offer. Led by Anbang Insurance, the company that purchased the Waldorf Astoria in New York for nearly $2 billion in 2014, the group announced an all-cash offer of $12.8 billion for Starwood's outstanding equity. That works out to $76 a share, a nifty premium over Marriott's cash-and-stock offer that was announced at $12 billion in November, but was valued at about $11 billion at last Friday's closing prices. The Starwood offer became public just hours after Anbang agreed to acquire Strategic Hotels from the Blackstone Group, the same company that sold the Waldorf. The price for Strategic's portfolio of luxury properties? About $6.5 billion, meaning Blackstone flipped the real estate to Anbang for a cool half-billion in profits just months after acquiring Strategic. The battle between Anbang, a politically connected, serially acquisitive Chinese newcomer, and starchy, establishment Marriott might move quickly. A technical deadline officially expires today (March 17) and there are the scheduled shareholder meetings on March 28. But fiduciary responsibility weighs heavily with directors and they'd preferred not to be sued. So this battle could drag on for a while. What does all this frenzied activity mean? Who's winning, who's losing, who's who — and who is most likely to offer us the best room upgrades? Let's consider that last one because, well, why not put our needs above the financial machinations? It turns out that where you sit on the competing bids depends on where you sleep. If you're not brand-specific You may value traditional lodging standards — location, price, in-hotel amenities — over brand loyalty. If so, who gets control of Starwood may be irrelevant. If Marriott wins, the additional Starwood locations would help Marriott in its battle with the online travel agents (OTAs), gigantic firms like Expedia.com that charge hotels 20 percent or more per reservation. But Marriott's not likely to share any bounty with you. In fact, Marriott last weekend announced an OTA-fighting incentive: join Marriott Rewards and book direct at Marriott.com to receive a special nightly rate. But the savings amount to as little as 2 percent on a room night. That's not exactly a game-changer. If Anbang wins, Starwood is most likely to remain independent. That keeps another competitor on the lodging landscape, creating competition both for hotel booking and the value of loyalty programs. If you're a Marriott loyalist If you're already a player in Marriott Rewards, you're rooting for Marriott to win control of Starwood. That would give you a chance to book at Starwood's 1,300 properties and receive Marriott Reward points. And, naturally, you'd be able to claim awards at ritzy properties such as St. Regis, fancy hotels in the Luxury Collection and the supposedly trendy W and Westin chains. No matter how Marriott might change the Rewards program or reorder its brand portfolio after grabbing Starwood, you'd have more places to earn and burn points. If you're loyal to other chains If you're a big player in Hilton HHonors, Hyatt Gold Passport or the frequency program of any other hotel group, you may be on the fence about the Starwood battle. If Marriott gets larger, that might pressure your favorite frequency plan to up its game to keep your custom. After all, they'd have to invent perks, privileges and promotions to offset the combined global footprint of Marriott and Starwood. On the other hand, a win for Anbang would keep Starwood independent — and more competition is usually better for business travelers. Just look at how major airlines are shrinking frequency plans now that there are so few players left flying. If you're a casual Starwood customer Should you be an infrequent Starwood customer or only a basic level player in Starwood Preferred Guest, you might benefit if Marriott picks up Starwood. Why? Size. The combined Marriott-Starwood operation would offer worldwide scale and many more lodging options. Plus you'd be able to combine your SPG and Marriott Reward accounts and possibly generate additional value from your existing currency. If you're an elite Starwood loyalist From the moment that the Marriott-Starwood deal was announced, SPG elite guests have been in a panic about the combination. The reason is simple. SPG's elite levels are much richer, more inventive and creative than Marriott Rewards' status levels. Thanks in part to the Starwood Preferred American Express card, SPG points are incredibly valuable and extraordinarily flexible. It's hard to envision Marriott keeping all or even most of SPG's elite value proposition. Marriott has pushed back strenuously against that conclusion. Chief executive Arne Sorenson specifically addressed SPG members in a video and recently offered touchy-feely written testimonials explaining why he's used the same barber for 20 years. Marriott's outreach hasn't dampened the disquietude among SPG elites, however. Most are rooting for the Anbang bid and a Starwood free of Marriott. Why are Starwood's elite's uniquely important? According to the chain, just 2 percent of its customers generate 30 percent of its profit. Anbang could probably keep them if it bought Starwood and kept running it independently. Marriot would have to struggle — and possibly restructure its entire operational mantra — to keep those elites in the Marriott fold. The bottom line The bottom line? Well, er, the bottom line. What we business travelers think won't matter much to Starwood's board, Marriott or Anbang. They'll argue over numbers, consider financial ramifications, look at the angles — like Marriott's $400 million break-up fee — and then decide what works for them. We're just bystanders with a rooting interest and some frequent-guest points at risk.
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