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The American Motel: How the Starwood Hotels & Resorts and Marriott International Merger can Impact Franchisors and Franchisees Abstract: The law can impact virtually every aspect of hotel operations. From franchise relationships to bankruptcy, the law can have a significant impact on the growth, development, and long-term operations of a hotel. On September 23, 2016 Starwood Hotels & Resorts and Marriott International merged to create the world’s largest hotel chain. As the new Marriott seeks to eliminate brands and reduce guest confusion, the Property Improvement Plan will become a powerful tool in the goal of creating the new Marriott International. Joshua Z. White J.D. University of Oregon September 1, 2016

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The American Motel: How the Starwood Hotels & Resorts and Marriott

International Merger can Impact Franchisors and Franchisees

Abstract: The law can impact virtually every aspect of hotel operations. From franchise

relationships to bankruptcy, the law can have a significant impact on the growth, development, and long-term operations of a hotel. On September 23, 2016 Starwood Hotels & Resorts and Marriott International merged to create the world’s largest hotel chain. As the new Marriott seeks to eliminate brands and reduce guest confusion, the

Property Improvement Plan will become a powerful tool in the goal of creating the new Marriott International.

Joshua Z. White J.D. University of Oregon September 1, 2016

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The American Motel Table Of Contents

Be Our Guest: Welcome To The American Motel.........................................................................................1

As An Attorney: How Does A Hotel Impact Me?......................................................................................2The Three Very Expensive Words That a Hotel Owner Never Wants to Hear: Property Improvement Plan..............................................................................................................................................................3PILLOW FIGHT: Hotel “refresh” plans launch the “bed wars”................................................................5The Lodging Industry In The United States..........................................................................................................7

Who Controls the Hotel Market............................................................................................................................7Bon Voyage: Competition from Hotels is not the Only Threat to Hotels ......................... 8

Consolidation: Marriott and Starwood say “I Do!” I now pronounce you Hotel & Hotel?......................................................................................................................................................................................................10

Operating Segments Of The Combined Marriott International..................................................14“If anyone opposes this marriage, let them speak now, or forever hold their peace.”.15

The Chinese Government Delays the Marriott Deal...........................................................................15Some Hotel Owners Were Not Happy: The Injunction To Block The Marriott Merger...16

Is There Room In There Room In The Hotel Industry For Future Consolidation?......................18Conclusion............................................................................................................................................................................19Appendix...............................................................................................................................................................................20

Table 1 – The Most Common and Largest Hotel Operators in the World........................20Table 2 – Primary Cruise Line Operator...................................................................................................20Table 3: The newly combined Marriott International.....................................................................21

About the Author Joshua Z. White is an LL.M. student at the University of Oregon. He completed his J.D. at Mercer University and his B.S. at Tennessee Technological University. Prior to law school, Josh taught elementary school in Georgia and the United Arab Emirates. During college and while teaching, Josh continued to work in various hotels and has experience with Wyndham Worldwide, Carlson-Rezidor Hotel Group, and Marriott International. The hotel has always been a source of fascination and interest for Josh, with his grandfather going so far as predicting that he would one day grow up to own a Holiday Inn.

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Be Our Guest: Welcome To The American Motel1

Every day around the world there are people busy at work in invisible cities,

cities that are almost never seen to those working outside of the hotel industry.

Meanwhile in the more visible part of the city, there are employees checking guests in,

cleaning, serving, and making sure that everything runs smoothly. When visitors to

these invisible cities lay their heads down at night, rarely, if ever do they have an idea

of how much work has gone into making their stay as enjoyable as possible.

While there are many hotel brands and companies that exist around the world,

there is one company that stands out. Marriott International is the worlds largest hotel

company and remains one of the few major hotel companies still controlled by the

founding family. The Marriott Family has had some form of direct or indirect control

and management over the company since it started as an A&W Root Beer Stand in


When the first Marriott Motor Lodge opened in 1957, history was written by the

sheer determination of J.W. “Bill” Marriott, JR.3 The day that the first Marriott Motor

Lodge opened; Bill Marriott received an unexpected phone call from Walt Disney

wanting to know if the Marriott’s would be interested in operating the hotel at the new

Disney Land Resort. Bill Marriott declined, saying he didn’t know if they would be able

1 With respect to the words “hotel” and “motel” the technical difference is that a hotel has interior corridors while a motel is property that has doors that open to the outside. 2 On April 1, 2012 the Marriott family patriarch, Bill Marriott Jr. stepped down as the Chairman and CEO of Marriott International. It marked the first time that Marriott was not under direct daily operational control of the Marriott family. Today, many of the decisions made by Arne Sorenson, a hand selected pick of Bill Marriott Jr. to lead the company are still heavily influenced and guided by the Marriott family. 3 J.W. “Bill” Marriott, JR. & Kathi Ann Brown, Without Reservations: How A Family Root Beer Stand Grew Into A Global Hotel Company (Luxury Custom Publishing 2012)

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to make the first one work.4 Bill Marriott JR. evidently figured out how to make it work

and swiftly grew Marriott’s hotel business into a hotel titan. It was Bill Marriott JRs

willingness to take chances and risks combined with his successful understanding of

the colossal inner workings of an invisible city that helped grow Marriott into the

success it is today.

“In every large hotel – hidden from the eyes and ears of guests – exists an invisible city. Behind doors, below ground, a maze of corridors connects kitchens to loading docks, housekeeping to the laundry, accounting to the communications center. An around the clock army of cooks, housekeepers, engineers, waiters, dishwashers, electricians, and other specialists bustles along these hallways, each member responsible for making his or her part of hotel operations run smoothly.”5

Unlike many real cities that shut down at 6 PM and are closed on holidays, the

“invisible city” within a hotel never closes. Even further behind the scenes of that

invisible city is another level of work that is always changing and always working. The

massive networks and complicated structures of the business associations within the

hotel industry and the franchisor/franchisee relationship could not be done without the

work of attorneys.

As An Attorney: How Does A Hotel Impact Me?

Attorneys are involved in hotel functions from the earliest stages of planning,

construction, opening, and day-to-day operations. The complicated nature of the

franchise model in the hotel industry means that an attorney will always have a job.

Attorney’s who represent hotels may also be asked to review matters pertaining to

environmental law, international law, immigration law, construction law, tort law,

4 J.W. Marriott, JR. & Kathi Ann Brown, The Spirit To Serve: Marriott’s Way, Harper Collins, 1st ed. 1997. 5 J.W. Marriott, JR. & Kathi Ann Brown, The Spirit To Serve: Marriott’s Way, at XVII, 1st ed. 1997.

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criminal law, intellectual property law, and almost every other area of law

conceivable. Since a hotel never closes, hotel attorneys usually have an opportunity

for work at any time if they represent a hotel or its owners as clients. As an added

benefit, there are hotels around the world, giving the hotel attorney the opportunity to

experience the finest of the hotel(s) he may represent, whether that hotel is in Paris or

Bora Bora, or places most people will never see such as Iran6 or North Korea.7

The Three Very Expensive Words That a Hotel Owner Never Wants to Hear:

Property Improvement Plan

There are three words that can cause anxiety for a hotel owner – Property

Improvement Plan. (PIP) “PIPs, [SIC] are used when a hotel is not meeting branding

standards.8” The PIP is one of the most powerful apparatuses that a hotel franchisor

has in its arsenal of control.

A good hotelier will always have a running PIP in place to guarantee that their

hotel is in the best condition possible. A true hotelier knows and understands the value

of a PIP and sets daily, weekly, monthly, even yearly goals to meet on the property

level. It is when that PIP goes from a property level to a PIP mandated by a franchisor

where things can quickly turn nasty.9

6 Press Release, Iran Cultural Heritage and Tourism Investment Group Co. & AccorHotels Group, Signature of Management Agreement For Two Hotels in Tehran, September 15, 2015 (On file with the author). 7 Chad O’Carroll, Kempinski Freezes ‘Hotel of Doom’ Plans In North Korea: ‘Market Conditions’ Make Kempinski’s Involvement in Ryugyong Hotel Impossible, NK*NEWS|한국어 (March 28, 2013) https://www.nknews.org/2013/03/kempinski-freezes-hotel-of-doom-plans-in-north-korea/ (last visited October 26, 2016) 8 Doug Gollan, Starwood and Marriott: Which Brands Are On The Chopping Block?, Forbes.com, November 17, 2015 http://www.forbes.com/sites/douggollan/2015/11/17/starwood-and-marriott-which-brands-are-on-the-chopping-block/print/ (last visited October 20, 2016) 9 See Rivermont Inn, Inc. v. Bass Hotels & Resorts, Inc., 113 S.W.3d 636 (Ky. Ct. App. 2003); Country Inn & Suites By Carlson, Inc. v. Interstate Props. LLC., Case No. 6:07-CV-104-ORI-28 DAB, 2008 BL 149658 (M.D. Fla. July 16, 2008); AMTX Hotel Corp. v. Holiday Hospitality Franchising, Inc., No. 2:12-01-035-J, 2012 BC 141841 (N.D. Tex. June 7, 2012); Choice Hotels Intl., v. Bhakta, Civ. Act. No. 2:11-CV-00411, 2013 BL

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A franchisor mandated PIP can be fatal for many hotels as the cost to

implement the changes and improvements can be hundreds of thousands of dollars

for an ordinary hotel or tens of millions of dollars for larger properties or resorts.10 When

considering Marriott International and its thirty-one brands, the PIP will become a

useful, albeit threatening, tool for Marriott to use when convincing a hotel owner to

voluntarily leave the Marriott system, convert from Westin to Sheraton, or convince a

poorly performing full-service Sheraton to convert to the lesser Four Points by Sheraton


“Marriott holds a number of cards in dealing with cranky hotel owners. The quickest way to get (an owner) out is to do a PIP – a property improvement plan.”11

Traditionally Marriott International has not been very willing to accommodate owners

demanding to make adjustments to PIPs.

“ . . . Marriott is the least flexible of the major management companies in terms of granting owners exceptions. A PIP can cost into the tens of millions of dollars depending on what needs to be done, though Marriott has the carrot of offering the owner to switch to another of its brands where the conversion would be less expensive, [SIC] nobody does it better than Marriott.”12

Marriott built its brand on uniformity. When you check into a Marriott in New York City it

should provide the same level of quality and service as a Marriott in Atlanta, Paris, or

Dubai. The guest knows what to anticipate when they check into a Marriott property,

and for Marriott that formula has proven to be victorious, resulting in satisfying the 93655 (S.D. Tex. Apr. 5, 2013); Area Reno Hotel, LLC. v. Bonthala, No. 2:11-CV-00617-KJD-CWH, 2013 BL 332931 (D. Nev. Nov. 27, 2013); But see Holiday Inn Franchising, Inc. v. Hotel Assocs., 2011 Ark. App. 147, 382 S.W.3d 6 (2011) 10 See In re Sundale Ltd., 400 B.R. 890 (Bankr. S.D. Fla. 2009); In re 1701 Commerce, LLC, 511 B.R. 812 (Bankr. N.D. Tex. 2014); In re Mount Olive Hospitality, LLC. Case No 12-327 81/Jan, 2014 BL 137174 (Bankr. D.N.J. May 16, 2014) 11 Doug Gollan, Starwood and Marriott: Which Brands Are On The Chopping Block?, Forbes.com, November 17, 2015 http://www.forbes.com/sites/douggollan/2015/11/17/starwood-and-marriott-which-brands-are-on-the-chopping-block/print/ (last visited October 20, 2016) 12 Id.

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expectations of the guest. It is ultimately a formula that Marriott is not willing to deviate


PILLOW FIGHT: Hotel “refresh” plans launch the “bed wars”

Hotel franchisees are frequently under the threat of change by the hotel industry

and by the franchisors that are frequently launching new programs. In the early 2000’s

franchisors began to modernize their brand image and remove obsolete hotels from

their portfolios. Programs such as Hampton Inn’s “Make it Hampton13” and “Forever

Young14” each targeted a new and expensive direction for the Hampton Inn brand.

Following the immense success of the 2003 launch of the Holiday Inn Express Breakfast,

which placed an emphasis on the guest breakfast experience, and gave birth to the

now famous Holiday Inn Express cinnamon rolls, Intercontinental Hotels Group (IHG)

decided to go another step and in 2004 launched the Holiday Inn Express shower

head. These changes coincided with the “Stay Smart” campaign, and forced hotel

owners to find ways to prevent guests from taking the showerheads with them.

In 2007, IHG made the biggest change of all – one that impacted nearly every

element of its operations when it “refreshed” the entire company15. The Holiday Inn

Refresh program launched a new direction for the entire chain in an effort to improve

revenue and increase guest satisfaction. Hotels saw new signage, and logos, required

13 Press Release, Hampton Inn, Hampton Completes First Stage of “Make It Hampton” Upgrades Entire Hotel Portfolio (May 2,, 2005) (On file with the author). 14 Hampton’s Forever Young Initiative, http://www.randdae.com/13183/Franchise%20Documents/ 13%20guestroom-guide-v1_1-june-2014-hamp.pdf (last visited October 20, 2016). 15 Holiday Inn Gets Brand Refresh, Hotel Interactive, October 5, 2015 http://www.hotelinteractive.com/article.aspx?articleid=37606 (last visited October 20, 2016). See also Press Release, Choice Hotels International, Choice Hotels to Put $40 Million Into Its Biggest Brand (May 14, 2013) (On file with the author.)

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renovations through PIPs, and many older Holiday Inn properties faced nonrenewal of

their franchise agreements because of the expenses related to the “refresh” program.

IHG was not the first to make changes that were very costly for hotel owners.

When franchisors bet big and make endeavors to ensure that they are competitive

with the rest of the industry is when franchisees may have second thoughts about the

nature of their relationships.

Marriott International was on the forefront of what would become known as the

“bed wars.”16 Marriott led a $190 Million plan by which Marriott would replace the

bedding in all of its hotels. Marriott’s experience was positive enough that between

theft and the consistent guest question “where can I buy this”, that Marriott launched

ShopMarriott.com17 a venue in which you can turn your own bedroom into a Marriott18

complete with Marriott’s own lamps, mattresses, sheets, pillows, duvets, towels, and

robes! Marriott was not the only major hotel chain to take advantage of improving the

guest experience and other chains followed or improved upon their existing programs.

Radisson entered into an alliance with Sleep Number and added Sleep Number beds

at its properties19. Starwood, not to be left alone, made similar changes to its Westin

brand by introducing “The Heavenly Bed,” which was the first of the major hotel chains

to have their products sold nationwide at Nordstrom.20

16 Michael Milligan, Marriott Launches $190 Million Program To Upgrade Bedding, Travel Weekly (January 26, 2005) http://www.travelweekly.com/Travel-News/Hotel-News/Marriott-launches-190-million-program-to-upgrade-bedding (last visited September 22, 2016) 17 Author’s Note: In case you were curious about what happens if you steal that duvet? Check your credit card statement, it will cost you about 5000% more than the hotel paid for it. It was always so much fun to charge a guest who decided that should keep them. 18 Shop Marriott, https://www.shopmarriott.com/index.aspx (last visited September 23, 2016) 19 Press Release, Carlson Hotels Worldwide, Radisson Hotels & Resorts To Feature The Sleep Number Bed (May 25, 2004) (on file with the author. 20 Westin Hotel & Resorts, Sleep Well, http://www.starwoodhotels.com/westin/about/sleep-well.html?language=en_US (last visited October 20, 2016). See also Press Release, Nordstrom, Westin Hotels

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The Lodging Industry In The United States

The American Hotel and Lodging Association estimated in 2014 that there were

53,432 hotels with 4,978,705 rooms in the United States21. In 2014 the lodging industry is

estimated to have taken in $176 billion in revenue. To put this in comparison, the

lodging industry in 2014 represented the same revenue taken in globally by Microsoft

and Boeing combined.22 Even with such a high dollar figure, this is only indicative of

the amounts spent in the three mainland North American counties – Canada, Mexico,

and the United States. Because global travel is easier now than ever, these numbers

do not indicate the amounts that Americans spend in places such as Africa, Asia,

Australia, the Caribbean, or Europe.

Who Controls the Hotel Market While it may seem that every day a new hotel brand shows up, less than ten

corporate entities control the franchise rights of the preponderance of the world’s

hotels majority of the world’s hotels23. The majority of the parent companies are based

within the United States primarily in Chicago, Bethesda, Beverly Hills, and Minneapolis.

A smaller number of parent corporations are headquartered in London, Paris, and

Shanghai respectively24. [See Appendix Table 1]

While this is by no means an exhaustive list of hotel companies and brands, this

small group of companies has a firm grip on the worlds hotels. Each of these Iconic Heavenly Bed To Be Sold At Nordstrom Stores Nationwide; Westin The First Hotel Company To Gain National Retail Store Presence (May 3, 2005) (On file with the author). 21 The American Hotel and Lodging Association, Lodging Industry Trends 2015, https://www.ahla.com/uploadedFiles/_Common/pdf/Lodging_Industry_Trends_2015.pdf 22 Citation to the Forbes 500 List intentionally omitted 23 Hotel News Now: The 10 Largest Hotel Companies By Room Count (November 19, 2015) http://www.hotelnewsnow.com/Articles/28560/The-10-largest-hotel-companies-by-room-count 24 Intercontinental Hotels Group has a North American based office in Atlanta, Georgia. Accor North America has a North American based office in Miami, Florida. Carlson-Rezidor is primarily based in Minneapolis, Minnesota.

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corporations operates a significant number of hotel brands. Marriott for instance has

thirty-one individual hotel brands25 while Hyatt Hotels Corporation operates twelve

individual brands26. With mergers and consolidations, the number of brands will grow

and the number of parent corporations will shrink.27


While ignoring the threat from companies such Airbnb, a San Francisco based

company that allows people to rent out their homes, or rooms in their homes, there

has been a consistent threat to the success of many hotels and resorts – and that is the

always evolving and constantly legally challenged, cruise industry. An advantage for

the cruise industry is that cruise lines have the ability to go where it is impractical for a

traditional hotel to go, such as Antarctica. Within this much smaller segment there are

three companies that primarily control the cruise industry.28 [See Appendix Table 2]

Respectively, each company operates thousands of hotel rooms, among their many

brands, that have the unique ability to be in Miami on Monday and Buenos Aries on


Much like the hotel industry, there are also many cruise line companies.

However, the majority of cruise lines are controlled by Carnival and Royal Caribbean

25 Citation Intentionally Omitted 26 Hyatt Hotels Corporation, 2015 Form 10-K, February 18, 2016 http://s2.q4cdn.com/278413729/files/doc_financials/q4_2015/Final-H-10-K-12.31.15.pdf (last visited October 28, 2016) 27 Red Lion Hotels Group for instance just completed the acquisition of Vantage Hospitality Group. [Citation Intentionally Omitted] Red Lion Hotels Group will now operate one of the larger groups of budget branded hotels in the United States. 28 This list is not intended to be exclusive of all Cruise Lines. These three companies control the majority of cruise lines, but other operators such as Disney Cruise Line and MSC Cruises are also competing in this environment.

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respectively. Because each cruise line owns, operates, and maintains the ships in

which its hotels operate, cruise lines are not susceptible to a PIP.

In an effort to continually compete with each other and to make sure that they

have the best ships on the water, the cruise industry is constantly undergoing changes

and upgrades to improve the guest experience. This may involve dry-docking a ship

for retrofit29 or building a completely brand new ship.30 Each renovation and new ship

is an effort to compete with the other cruise lines and bring more amenities, value,

and opportunities to guests.

Cruise lines continually represent a legitimate and growing threat to the

traditional hotel as more than 23 Million passengers decided to cruise in 2015 alone31.

These ships are a true threat to the traditional resort model that all of the major hotel

companies operate around the world. Think of taking a large all-inclusive Ritz Carlton

resort and make it float, which is a large part of the reason that traditional hotels and

resorts must continue to compete with the cruise industry. Some chains have taken to

building elaborate, all-inclusive32 resorts in resort cities frequented by cruise ships such

as Nassau, Bahamas or Cancun, México. Some hotel chains have gone as far as

launching their own cruise lines in order to compete. Radisson launched its own cruise

29 Press Release, Norwegian Cruise Line, Norwegian Dawn Sets Sail For Bermuda As A New Ship (June 17, 2016) (On file with Norwegian Cruise Line). 30 Press Release, Norwegian Cruise Line, Norwegian Cruise Line To Debut New Ship Designed For Alaska Cruising In 2018 (October 13, 2016) (On file with Norwegian Cruise Line). 31 Florida-Caribbean Cruise Association, Cruise Industry Overview – 2015: State of the Cruise Industry, http://www.f-cca.com/downloads/2015-Cruise-Industry-Overview-and-Statistics.pdf (last visited October 28, 2016). 32 An all-inclusive resort generally includes all meals, alcohol, and some entertainment in the nightly price of the room.

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line, Radisson Seven Seas Cruises33. Even Disney decided to go sailing with luxury

Disney cruise vacations.

In the same way that the hotel industry and its respective franchise law could

have it’s own treatise, there could be multiple treatises written on the cruise industry

alone. A more in-depth discussion would involve discussion at great length on the laws

that impact the cruise line industry such as immigration, human rights, international

law, environmental law, business law, maritime law, contract law, and civil procedure.

Consolidation: Marriott and Starwood say “I Do!” I now pronounce you Hotel & Hotel?

Starting in the late 1980’s and early 1990’s the airline industry was left in shambles

after new competition entered the market following airline deregulation in the 1970’s.

By 2000 major global players such as Pan American Airways and Eastern Airlines had

disappeared. Trans World Airlines filed for Chapter 11 Bankruptcy for a third time. U.S.

Airways, United Airlines, Delta Airlines, Northwest Airlines, and eventually American

Airlines all found themselves facing Chapter 11 bankruptcy. This resulted in an

avalanche of consolidation within the airline industry and today Trans World,

Northwest, U.S. Airways, and many more legacy brands have disappeared from the

world’s skies.34 While this may seem like a unique problem for the airline industry, the

hotel industry was impacted in many of the same ways, especially after the 2008

economic recession. As a result, consolidation and mergers have slowly been taking

33 Radisson divested its cruise business to focus on its hotels and resorts. After the spin off, Radisson Seven Seas Cruises operated as Regents Seven Seas Cruises. Today Regents Seven Seas is a part of Norwegian. 34 Within the last ten years the vast majority of American based airline operators have experienced a merger or acquisition eliminating the number of legacy carriers. Ever since the Chapter 11 bankruptcy filings of Delta Airlines and Northwest Airlines, the consolidations have occurred at an alarmingly rapid pace and further reduced the options and choices for consumers, unlike the hotel industry, which may see consolidation but is unlikely to see the lack of competition in the same manner that the airline industry has experienced. [Internal citations intentionally omitted]

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place within the hotel industry. Because there is such a small group of actual hotel

parent corporations the mergers and acquisitions within the hotel industry have not

been quite as obvious. Even when signs of activity began to appear at Starwood

Hotels & Resorts, the hotel industry never would have guessed whom the eventual

suitor would turn out to be.

In February 2015, the longtime Chairman and CEO of Starwood Hotels & Resorts

resigned, sparking speculation that Starwood may be considering a major change. In

April 2015, Starwood Hotels & Resorts announced that they were exploring strategies to

maximize shareholder value35. Starwood had basically put a giant “for sale” sign on

the company. Within the hotel industry, it was rumored that the interested parties were

London based IHG or Chicago based Hyatt.36 In November 2015, with analysts

expecting an imminent announcement from Hyatt regarding a takeover of Starwood,

Marriott International announced that they had entered into an agreement to acquire

Starwood, creating the largest hotel chain in the world.37

Ironically, the two key brands operated by Starwood – Sheraton and Westin had

both been takeover targets by Marriott International in the past.38 Shortly before the

shareholders of both Marriott and Starwood were set to vote on the acquisition, A

35 Craig Karmin, Starwood Opens Door To A Suitor, The Wall Street Journal, April 29, 2015. 36 Joe Cahill, Hyatt’s Lost Hotel Deal Spotlights The Pritzkers’ dilemma, Crain’s Chicago Business, November 18, 2015 37 Press Release, Marriott International, Marriott International To Acquire Starwood Hotels & Resorts Worldwide, Creating The World’s Largest Hotel Company (November 16, 2015) (On file with the author) 38 Steve Lipin & Bruce Orwall, Hilton Launches a Takeover Bid for ITT; Stock Soars After Offer: World’s Largest Gambling, Lodging Firm Would Emerge From the $6.5 Billion Deal, The Wall Street Journal, Jan. 28, 1997, http://www.wsj.com/articles/SB854399858426370500 (last visited October 28, 2016); Jesus Sanchez, ITT to Be Acquired by Starwood Lodging, Los Angeles Times, October 21, 1997, http://articles.latimes.com/1997/oct/21/business/fi-44942 (last visited October 28, 2016); Starwood Hotels and Resorts News History, http://www.starwoodhotels.com/corporate/press/history.html?language=en_US, (last visited October 28, 2016); see also J.W. “Bill” Marriott, JR. & Kathi Ann Brown, Without Reservations: How A Family Root Beer Stand Grew Into A Global Hotel Company (Luxury Custom Publishing 2012); J.W. Marriott, JR. & Kathi Ann Brown, The Spirit To Serve: Marriott’s Way (Harper Collins 1997).

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Chinese insurance company, Anbang Insurance, stepped in and made an unsolicited

bid that rivaled Marriott’s.39 After a few terse weeks of negotiations, Anbang dropped

their bid40 and shareholders approved Marriott’s takeover.41

The newly combined Marriott operates thirty-one brands42. A risk of operating

thirty-one brands is the redundancy and competition of Marriott’s own brands

competing with themselves. Marriott will more likely than not seek to reduce the total

number of brands in order to avoid guest confusion and increase brand specific

loyalty. Brands that people have come to love may be sacrificed, such as Starwood’s,

W Hotels chain.

“The W brand should come under scrutiny, … it is struggling with a portfolio that was built over time and to different standards.”43

The W Brand was at one point a shinning star for Starwood, however its popularity has

become muddled as a result of the different eras when the hotels were constructed.

Some W properties have even converted to other Starwood brands due to the vast

differences in operations of the expectations at opening and the newer brand

standard.44 [See Appendix Table 3] The target audience for Marriott’s own

39 Press Release, Starwood Hotels & Resorts, Starwood Hotels & Resorts Announces Receipt Of Unsolicited Acquisition Proposal (March 14, 2016) (On file with the author) 40 Press Release, Starwood Hotels & Resorts, Starwood Hotels & Resorts Announces Anbang Consortium Has Withdrawn Offer (March 31, 2016) (On file with the author) 41 Press Release, Marriott International, Marriott and Starwood Stockholders Vote To Approve Merger (April 8, 2016) (On file with the author) 42 Marriott: Our Brands, http://www.marriott.com/marriott-brands.mi (last visited September 15, 2016). 43 Doug Gollan, Starwood and Marriott: Which Brands Are On The Chopping Block?, Forbes.com, November 17, 2015 http://www.forbes.com/sites/douggollan/2015/11/17/starwood-and-marriott-which-brands-are-on-the-chopping-block/print/ (last visited October 20, 2016) 44 What Now Atlanta?, W Hotel Perimeter Goes Independent, May 26, 2011, https://whatnowatlanta.com/w-hotel-perimeter-goes-independent/ (last visited October 28, 2016); Hospitality Net, Le Meridien Atlanta Perimeter Final Transformation Unveiled: Le Meridien Atlanta Perimeter Offers a Hub of Contemporary Design and Creativity in the Heart of Atlanta’s Perimeter Center Business District, September 25, 2013, http://www.hospitalitynet.org/news/4062309.html (last visited October 28, 2016).

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Renaissance Hotels45 brand and W are similar which would make it easy for Marriott to

eliminate W altogether and combine the impacted properties into brands such as

Sheraton, Renaissance, or Le Meridien. However, W has one tremendous asset to offer

Marriott, its discount brand, Aloft.

“Outside of people in the industry and hard core business travelers who are highly invested in loyalty programs, most people don’t know that Aloft is the budget version of W …”46

The Aloft brand adds value to Marriott’s limited service division which includes brands

such as Fairfield Inn & Suites, Courtyard Marriott, and Springhill Suites. Marriott will also

benefit from the addition of Four Points by Sheraton. Four Points will allow Marriott to

expand into new territory by offering properties an opportunity that would not

otherwise fit into the established molds of Aloft, Courtyard Marriott, or Fairfield Inn and

Suites. This will give Marriott a significant advantage when competing with brands such

as Holiday Inn Express or Hampton Inn by Hilton.

While the combined company is in its infancy, speculation about the future of all

of the brands is still too early. Marriott may struggle when it comes to brands such as

Marriott, Sheraton, Le Meridien, and Westin due to the fact that each chain competes

in a similar market segment. Brands such as The Luxury Collection, Tribute Portfolio, and

Autograph Collection may be easier to combine or consolidate. These brands were

designed to target independent hotels that wished to retain their independence while

taking advantage of the benefits of a brand such as Marriott. Marriott may also be

able to maximize the value of Starwood’s luxury chain also be able to leverage the

45 Renaissance is a former Hong Kong Based brand acquired by Marriott in 1999. 46 Doug Gollan, Starwood and Marriott: Which Brands Are On The Chopping Block?, Forbes.com, November 17, 2015 http://www.forbes.com/sites/douggollan/2015/11/17/starwood-and-marriott-which-brands-are-on-the-chopping-block/print/ (last visited October 20, 2016)

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power of smaller chains such as St. Regis by merging it into Marriott’s much larger and

better established Ritz-Carlton chain.

Operating Segments Of The Combined Marriott International

While Marriott International has classified the categories that Marriott, Sheraton,

and Westin operate in as different categories of service providers, the three brands

represent 119047 hotels currently open with 351 hotels in development48. Providing

owners a way in which to differentiate the highlights and offerings of the three brands

will be one key method for Marriott International to ensure the success of the

properties. This is also where Marriott may elect to use a PIP to remove or convert

hotels. In many instances there may be two or more of these brands located across

the street from each other. Once the integration of loyalty programs is complete,

Marriott will most likely use PIPs to differentiate hotels amongst each other.

In the select service segment, Marriott has significant room for potential growth.

With core brands Aloft, Four Points, Fairfield Inn and Suites, Courtyard Marriott, and

Springhill Suites consisting of 253749 currently open and 99350 in development, the

merger of Starwood and Marriott may provide for greater opportunities in the select

service segment - competing with brands such as Holiday Inn which currently has

361051 hotels currently open and an additional 91752 in development or Hampton Inn

47 Marriott Development: Grow With The Worlds Favourite Travel Company, https://hotel-development.marriott.com, (last visited October 28, 2016). 48 Id. 49 Id. 50 Id. 51 Intercontinental Hotels Group PLC, Our Global Presence, https://www.ihgplc.com/-/media/8F853A4DBAEF4E1197BD23B3336FA755.ashx . (last visited October 28, 2016). 52 Id.

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by Hilton, which has 2100 hotels open worldwide53. The addition of the Four Points

brand will provide Marriott with the ability to grow the chain by converting properties

that may currently be operating under a different brand or converting certain

properties that already exist within the Marriott system.

“If anyone opposes this marriage, let them speak now, or forever hold their peace.”

The Chinese Government Delays the Marriott Deal

By the time that the Marriott International merger hit antitrust regulators in China,

the United States, European Union54, Saudi Arabia, and México55 had already

approved the merger. Had China approved the merger as quickly as other countries,

the merger could have taken place as early as July 2016. While many speculated that

the delay by the Chinese government was an attempt to block the deal in retaliation

for Anbang’s failed attempt as previously discussed to purchase Starwood, neither

Marriott nor Starwood could simply walk away from the merger without paying a

significant break up fee.56 Chinese regulators could have asked for Marriott

International to divest hotels or brands in order to gain Chinese approval.57 However,

on September 20, 2016 the Chinese authorities gave their blessing.58

53Press Release, Hampton Inns, We Go Together, http://news.hampton.com/assets/HAMP/docs/Media_Kit/Hampton_Fact_Sheet_August_2016.pdf (last visited October 28, 2016). 54 Press Release, Starwood Hotels & Resorts, Marriott Receives Antitrust Clearance From the European Union to Acquire Starwood (June 27, 2016) (On file with the author) 55 Press Release, Starwood Hotels & Resorts, Marriott’s Acquisition of Starwood Has Antitrust Authorization From Saudi Arabia And Mexico (July 3, 2016) (On file with the author) 56The break up fee was detailed in the merger agreement. [Citation Intentionally Omitted] 57 Press Release, Marriott International, Update on China’s Ministry of Commerce Review of Marriott and Starwood Merger (August 8, 2016) (On file with the author). 58 Press Release, Marriott International, Marriott’s Acquisition of Starwood Receives Antitrust Approval in China; Marriott and Starwood Expect To Become Combined Company On September 23 (September 20, 2016) (On file with the author).

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The delay in approving the merger by the Chinese government gave Marriott

an opportunity to reduce the time required to begin integration. As soon as the

merger was completed on September 23, Marriott International quickly unveiled the

Marriott logo on Starwood websites and within a matter of days combined the

Starwood and Marriott loyalty programs in a manner allowing guests to continue to

redeem points through the respective programs and convert reward points from one

system to the other59.

Because neither Marriott nor Starwood could operate as a combined company

until Chinese regulators gave approval, both companies continued to operate

independently. During this time Starwood made prodigious moves to become the first

American hotel chain to enter Cuba in over sixty years.60 The addition of Sheraton

branded properties in Cuba will be a benefit Marriott will appreciate with the

expected increase in tourism to Cuba.

Some Hotel Owners Were Not Happy: The Injunction To Block The Marriott Merger

The marriage of Marriott International and Starwood did not come without

objection from hotel owners. In 2016, a lawsuit was filed against both Marriott

International and Starwood Hotels and Resorts respectively to prevent the merger. The

lawsuit61 on behalf of Cityfront Hotel Associates and Dream Team Hotel Associates was

brought in order to prevent the merger claiming that the merger would violate

59 Full Integration of Marriott Rewards and Starwood Preferred Guest will not be completed until 2018 (Citation intentionally omitted) 60 Press Release, Starwood Hotels & Resorts, Starwood Hotels And Resorts Announces Groundbreaking Expansion To Cuba (March 19, 2016) (On file with the author). See also Press Release, Starwood Hotels & Resorts, Starwood Hotels & Resorts Makes Historic Debut With The Opening Of Four Points Havana (June 29, 2016) (On file with the author). 61 Cityfront Hotel Associates Limited Partnership et al. v. Starwood Hotels and Resorts Worldwide et al., case number 652521/2016

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exclusivity agreements. The agreements of both the Sheraton Chicago and Westin

Times Square were already being encroached upon the exclusive territory agreed

upon by the hotel owners when the franchises were issued. Starwood had already

interfered with the exclusive zones by adding newer Starwood brands or by approving

other Starwood brands that were not in direct competition into the protected territory.

With the addition of Marriott’s brands in the Starwood exclusivity zones, the hotel

owners are now confronted with direct competition from “sister” brands in territories

that they previously had the exclusive right to operate within. Additionally, because

Marriott tends to market all of its brands through one website, it reduces the ability for

the hotels to remain unique to their brands and not stand out against other brands by

location and amenities available. Rightfully, the hotel owners are angry that while they

may have had competition with a neighboring Marriott branded hotel in the past, the

merger now puts them under the same umbrella, marketing, and support of the

neighboring hotel.

While such lawsuits are not uncommon within the franchise industry, these cases

are often complicated and difficult to prove successfully62. Even if Cityfront is

successful in their efforts suing Marriott International, the damages will most likely be

limited to liquidated damages. The judge in the case refused to issue an injunction to

stop the merger, and the lawsuit is still pending. [Despite the fact that the two

companies have already completed their merger and begun the integration process.]

62 See also Domed Stadium Hotel, Inc. v. Holiday Inns, Inc., 733 F.2d 480 (5th Cir. 1984) [Holiday Inn licensed its name to Domed Stadium Hotels and later purchased on its own behalf a New Orleans hotel that was within proximity of the Domed Stadium property. Domed Stadium brought suit for breach of contract and antitrust, but the Court found for Holiday Inn’s claiming that there as no breach of contract and that Holiday Inn could not have a monopoly on the total number of hotel rooms available in New Orleans, Louisiana.]

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Is There Room In There Room In The Hotel Industry For Future Consolidation?

Regulators within the United States have recently been stopping major mergers

between similar companies. In 2016 alone the Federal Trade Commission (FTC)63 has

stopped the merger of Staples and Office Depot citing antitrust concerns64 and

currently the FTC is looking at Walgreens regarding its acquisition of rival, Rite-Aid.65

Despite being absent from the Marriott & Starwood merger, antitrust66 concerns may

soon arise. Another acquisition similar in size to the Marriott and Starwood merger is

more likely than not to raise antitrust concerns with the FTC. Arguably a merger

between Choice Hotels International and Wyndham Worldwide has the potential to

create antitrust concerns.

In the last few years’ mergers have taken place within the hotel industry, just at a

slightly slower and much more quiet pace. In 2014 IHG purchased Kimpton Hotels67. In

July 2016 Accor acquired Fairmont Raffles Hotel Group68. Hilton Worldwide has had its

previous share of mergers and acquisitions and today Hilton’s strategy appears to

63 The FTC is a United States administrative agency that is in place to protect consumer and prevent “anticompetitive business practices” and monopolies. 64 Citation Intentionally Omitted 65 Citation Intentionally Omitted 66 See The Sherman Act: 26 Stat. 209, 15 U.S.C. §§1-7; See also Standard Oil Co. v. United States (Standard Stations), 337 U.S. 293 (1949); United States v. Grinnell Corp., 384 U.S. 563 (1966); Pfizer, Inc. v. Government of India, 434 U.S. 308 (1978); United States v. Hilton Hotels Corp., 103 S.Ct. 446 (1982); United States v. American Airlines, Inc., 743 F.2d 1114 (1985); Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985); FTC v. Staples, Inc., 970 F. Supp. 1066 (1997); Fraser v. Major League Soccer, 284 F.3d 47 (1st Cir. 2002); United States v. Oracle Corp, 331 F. Supp. 2d 1098 (2004);Verizon Communications v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004); Spirit Airlines, Inc. v. Northwest Airlines, Inc., 431 F. 3d 917 (2005); Cityfront Hotel Associates Limited Partnership et al. v. Starwood Hotels and Resorts Worldwide et al., case number 652521/2016. 67 Press Release, Kimpton Hotels and Restaurants, IHG Agrees To Acquire Kimpton Hotels & Restaurants To Create The World’s Largest Boutique Hotel Business (December 15, 2014) (On file with the author) 68 Press Release, AccorHotels Group, AccorHotels Adds Global Luxury Brands With Landmark Acquisition Of Fairmont, Raffles, and Swissotel And Stands Among The Leaders Of Luxury Hotel Market (July 12, 2016) (On file with the author)(Translated from French)

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focus on growing the company organically.69 Within the major players of the hotel

industry two companies, IHG and Hyatt could be potential takeover or merger

partners. While they are still independent companies; only time will tell if they can

successfully remain independent or if they will become acquisition targets. With a lack

of overlap in many markets and operating segments, Hyatt and IHG might find

themselves merging.70 Again, with a merger of another hotel company, the PIP will

come into play, as the newly combined company works to cull the company of

certain properties.

Conclusion As the hotel industry is always changing, a good hotelier [and their attorney]

does not stand back and say, “what’s next” as much as he says, “bring it on!” The

hotel industry as a whole will continue to experience growth. The PIP will ultimately

remain a consistent device to combat “grumpy hotel owners” who are disinclined to

make the changes that are required. While invisible cities inside the world’s hotels go

to work each and every day, the role of the attorney behind the scenes will also go on

each and every day. Being prepared for what can happen next, will be the hallmark

of a great hotel, and their attorney.

69 Nancy Trejos, Hilton Announces New Affordable Hotel Brand, Tru, USA Today, January 25, 2016, http://www.usatoday.com/story/travel/hotels/2016/01/25/hilton-tru-new-hotel-brand/79185810/ (last visited October 28, 2016). 70 Hotel Online, Holiday Inn New York City Midtown Will Be Converted To Hyatt in September 2014, February 10, 2014, http://www.hotel-online.com/press_releases/release/holiday-inn-new-york-city-midtown-will-be-converted-to-hyatt-in-september-2# (last visited October 28, 2016). [The conversion of the Midtown New York Holiday Inn to a Hyatt branded property is evidence that the two brands could easily be meshed together]

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Table 1 – The Most Common and Largest Hotel Operators in the World

Table 2 – Primary Cruise Line Operator

Because cruise lines operate in international waters, they often take advantage of forum selection clauses by requiring that lawsuits be brought in the Federal District Courts in Miami. Only Norwegian Cruise Line operates with a ship flagged in the United States. The majority of ships are flagged in Panama, Bahamas, or Bermuda.

71 Carnival Corporation & PLC, Form 10-K (2015), (January 29, 2016) http://phx.corporate-ir.net/phoenix.zhtml?c=140690&p=irol-reportsannual 72 Royal Caribbean Cruises LTD, Form 10-K (2015), (February 22, 2016) http://app.quotemedia.com/data/downloadFiling?webmasterId=101533&ref=10760201&type=HTML&symbol=RCL&companyName=Royal+Caribbean+Cruises+Ltd.&formType=10-K&dateFiled=2016-02-22 73 Norwegian Cruise Line Holding LTD, Form 10-K (2015), (February 29, 2016) http://www.nclhltdinvestor.com/secfiling.cfm?filingID=1571049-16-12414&CIK=1513761

Corporation Headquartered Hotels Rooms Planned Wyndham Hotel Group United States 7,760 504,357 910 Choice Hotels International United States 6,379 504,357 638 Jin Jiang International China 6,000 640,000 N/A Marriott International1 United States 5456 1,071,096 2,011 Intercontinental Hotels Group1 United Kingdom 4,963 726,876 1,319 Hilton Worldwide United States 4,480 737,922 1,555 Best Western United States 3,903 303,768 490 AccorHotels Group SA France 3,815 500,366 N/A HomeInns Hotel Group China 2,787 311,608 235 Carlson-Rezidor China1 1,092 172,234 280 Hyatt Hotels Corporation1 United States 599 159,336 N/A

Parent Corporation Country of Incorporation Carnival Cruise Lines Panama71 Royal Caribbean International Republic of Liberia72 Norwegian Cruise Lines Bermuda73

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Table 3: The newly combined Marriott International74

The Ritz-Carlton Marriott Courtyard Residence Inn St Regis Sheraton Four Points TownPlace Suites JW Marriott Marriott Vacation

Club Springhill Suites Marriott Executive

Apartments Ritz-Carlton Reserve

Delta Hotels Protea Hotels

Bulgari Hotels Le Meridien Fairfield Inn & Suites

W Hotels Westin Element Edition Autograph

Collection Hotels Aloft

The Luxury Collection

Design Hotels AC Hotels

Renaissance Hotels

Tribute Portfolio75 Gaylord Hotels Protea Hotels

74 Marriott: Our Brands, http://www.marriott.com/marriott-brands.mi (last visited September 15, 2016).