Marriott International Inc. on Tuesday said it has agreed to buy Renaissance Hotel Group in a $1-billion deal that promises to dramatically expand Marriott’s presence in fast-growing Asian markets.
The Marriott announcement comes only a few weeks after Renaissance, which is controlled by Hong Kong real estate and lodging giant New World Development Co., had tentatively agreed to be sold to rapidly expanding Doubletree Corp. However, after some transpacific negotiations with New World executives, Marriott topped Doubletree’s $890-million offer.
“This is a very good match for both of our companies,” Chairman and Chief Executive J.W. Marriott Jr. said at a news conference in Los Angeles. “I’m very confident that our respective strength will enhance the value of our current hotel holdings.”
The acquisition would increase Marriott’s debt burden and dilute earnings for the next two years. However, Wall Street investors responded favorably to the deal, which is expected to reap major, long-term benefits for Marriott as well as result in $20 million a year in cost savings.
On the New York Stock Exchange, Renaissance shares soared $4.625 to close at $29.75 and Marriott rose $1 to close at $56.25. Doubletree shares gained $2.50 to close at $43.125 on Nasdaq.
The Marriott-Renaissance deal is part of a wave of mergers and acquisitions in the hotel business as major players try to stay on top of a rapidly consolidating industry.
“Strategically it makes a lot of sense,” hotel industry analyst John J. Rohs said of Marriott’s plans to buy Renaissance. “It’s a real plus [for Marriott] in that it gives them a major uptick in their international exposure.”
The acquisition would more than double Marriott’s international presence and create a formidable alliance with New World, which owns 54% of Renaissance and ranks as one of the largest real estate development firms in Asia.
“We think that we should concentrate on the core business, which is real estate development,” said Henry K.S. Cheng, chairman of Renaissance and managing director of New World. “We think [Marriott] can bring more value to our properties.”
Doubletree, which is partially owned by Southern California businessman Peter V. Ueberroth, said Tuesday that it would not try to top Marriott’s bid. The Phoenix-based company will walk away with $15 million in breakup fees under terms of a preliminary agreement reached with Renaissance in early January.
Marriott would pay each Renaissance stockholder $30 per share in cash for a total of $900 million. The cost of the offer by the Washington-based lodging company also includes the assumption of $50 million of Renaissance debt and other acquisition-related expenditures.
Marriott is already one of the nation’s largest hotel management and franchise companies. Its hotel chains run the gamut from Fairfield for budget-minded travelers to four-star Ritz-Carlton properties.
Renaissance operates or has franchised 150 hotels, including more than 30 in Asia. It also operates the Ramada International chain.