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Starwood Hotels eyes addition of luxury brand
March 18 2013

Expecting to generate significant cash over the next three years, Starwood Hotels & Resorts Worldwide is evaluating opportunities to grow its family of brands by way of acquisition.

Highlights
  • Starwood Hotels expects to generate at least $3 billion to $3.3 billion over the next three years.
  • Any additional brands would need to have a global footprint already established.
  • The challenge, said CEO Frits van Paasschen, is finding a brand that is for sale.
By Jason Q. Freed
Contributing Editor, Tech Impact Report

DUBAI—Executives at Starwood Hotels & Resorts Worldwide expect to have enough cash over the next three years to seriously consider adding another brand to their family.

If the right opportunity presents itself, the Stamford, Connecticut-based chain will look to buy a global, luxury brand—which would be the company’s 10th brand overall and fourth in the luxury segment, executives said.

Starwood Hotels executives talked about the opportunity to add a brand during an investor and analyst day presented from Dubai, where the company’s executives have created a temporary headquarters for the next few weeks. The company would rather purchase a brand than develop one from the ground up, executives said during the event, which was webcast.

Vasant Prabhu

“In addition to the cash we generate from the business, we have capacity,” said Vasant Prabhu, CFO and vice chairman. “ … Just from the business from operations before any asset sales, we think there's at least $3 billion to $3.3 billion that we will generate over the next three years to both return to shareholders and to invest in additional growth initiatives we might have, whether it is adding a brand, only if we can do it at the right price.”

The challenge, said CEO Frits van Paasschen, is finding a brand for sale.

“It’s not clear that there's a lot that are sort of fluidly traded and open for buying,” he said. “It's been that reason largely, more than anything else, that's prevented us from doing anything in the last seven or eight years. … But we'll continue to look at opportunities and if we find the right one, we're, certainly from a financial perspective, kind of overqualified to make the move.”

Starwood’s nine brands are divided in thirds—the company has three luxury brands (St. Regis Hotels and Resorts, The Luxury Collection and W Hotels); three upper-upscale brands (Westin Hotels & Resorts, Le Méridien Hotels & Resorts and Sheraton Hotels & Resorts); and three select-service brands (Four Points by Sheraton, Aloft and Element).

Van Paasschen said there is plenty of room for organic growth within most of those brands, so he doesn’t think the company suffers from a lack of brands. The select-service brands especially have room to grow, therefore any addition to the brand family would come at the luxury level, he said.

“Buying value brands isn't of great interest to us even at the select-serve level,” he said. “… We see, in some respects, our 4-star, select-serve business as almost an extension of and a way to fill in around our high-end business, and ultimately, is its growth vehicle such as they are.

“Five-star or upper-upscale brands or luxury brands, I think we could easily plug into our system, ones that have some base in scale or an ability to fold into ours, I think would be most attractive.”

Global growth
Van Paasschen said of all the U.S.-based hotel companies, Starwood Hotels has the highest number of hotels outside of the U.S. Sheraton, in particular, is thriving globally, Prabhu said.

“All of our brands have a global vibe about them. They're acceptable everywhere in the world and every one of them has a global pipeline,” Prabhu said. “They're not U.S. brands, like some of our competitors have, that are trying to make it outside the U.S. These are truly global brands.”

Frits van Paasschen
 

Therefore, van Paasschen said any additional brands would need to have a global footprint already established.

“Those that continue to give us even a greater extension of our global footprint would be attractive,” he said.

Starwood Hotels bought the Le Méridien brand in 2005, and owners of the properties have since invested about $2.5 billion collectively to align it with Starwood’s portfolio and branding strategy.

“To define Le Méridien as a brand when we bought it, I think, would have been a real stretch,” van Paasschen said. “This was a sign that was on a lot of buildings that happened also to be hotels when we bought it. And I think that over the last seven or eight years, we've really infused into Le Méridien a positioning and a philosophy of branding that's consistent with the rest of our portfolio.”

Meanwhile, Starwood Hotels has been divesting of its owned assets to become more of a fee-based business by way of management and franchise contracts. Today, approximately 65% of the company’s earnings are generated by fees and not real estate, and the goal is to get to at least 80%, van Paasschen said.

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