Hello everyone. I'm Brian Roen, senior reporter for CoStar News Hotels. Today I am speaking with none other than Tony Capuano, president and CEO of Marriott International. Our topic today is the 10-year anniversary of Marriott closing on its acquisition of Starwood Hotels and Resorts. Tony, thank you so much for being with us today.
Thanks for having me. Big day.
Yeah. I mean, can you believe it's been 10 years already since that? I mean, everyone that I have talked to leading up to the story, everyone remembers where they were and what they were doing in November of 2015 when the announcement came out that Marriott was going to buy Starwood. And here we are about 10 years later now, post-closing. So, to kick us off, I would like to ask you to step back, go back a little over a decade in time, and tell us about what led to Marriott's acquisition bid. It publicly announced the deal in November 2015, but obviously a lot of work had to go into preparing for the bid. So you were in a different role at the time. Arne Sorenson was leading Marriott then. What can you tell us about the lead-up to the bid announcement? What was your role in all of this? And what was going on behind the scenes with you, Arne, and the executive team?
So as you point out, I was leading our global development function. Arne was president and CEO, and we both sat on a board called IRFAC, which is the Industry Real Estate Finance Advisory Council of the AH&LA. And when the Starwood board announced that they were evaluating strategic alternatives, we looked quickly at the opportunity. Right around that announcement, Starwood actually had a higher stock price than Marriott. And because we knew a likely bid would be some combination of stock and cash, we did a quick underwriting and said we're not sure it makes a lot of economic sense. We weren't sure it would be accretive to shareholders, and we respectfully passed. And the deal, you know, presumably Starwood's special committee of the board continued with the process. And then Arne and I went to New York for an IRFAC meeting. At that point, Adam Aron, who had sat on the Starwood board, had been installed as interim CEO.
And literally at a coffee break, Adam, Arne and I were talking, and Adam said, "Are you sure you're not going to participate in the process?" Now, between the time we passed and that IRFAC, our stock prices had actually inverted. And so, the economics became a bit more compelling. And Arne's question to Adam was, "Well, we're more interested, but do we have time?" You know, we assume the process is well down the path. And Adam said, "Well, you do, but your time is running short. You would need to move quickly." And so, in a well-documented story, Arne and I came back to Washington. I think the meeting was on a Thursday in New York. And Friday, Arne went to see Mr. Marriott. And the way he describes that meeting, he said, "I want to raise an idea with you, and my only request is that you not react. I'm going to lay out this opportunity for you. I don't want you to say a word. I want you to take the weekend, and we can talk about it on Monday." And Arne laid out the basic parameters of a deal that would have us acquiring Starwood. And Mr. Marriott's not particularly good at following directions, I don't think. He immediately reacted with the right sort of questions, the right sort of concerns. He said, "But I'll accept your request and let me chew on it over the weekend and we'll talk Monday." And to hear Bill Marriott tell the story is fascinating because he said he went home that night.
And he said, "While it's intriguing just in terms of the scale of the opportunity, why would we do it? The company's doing great. It felt like we were firing on all cylinders. We were making great progress against the well-established priorities the company had set in place. The street seemed to be pleased with both our approach and the performance against our outlined objectives." And you know, he sort of on Saturday his view was why would we rock that boat? Again, the way he tells the story, when he woke up Sunday, he said, "I can't believe it. I'm falling into the trap that I tell our leaders not to fall into." And that trap is the trap of complacency.
And so when he, you know, he processed that through the weekend. And when he came in Monday, what he said to Arne was, "You ought to take a run at it. You know, I want to understand the economics better. We should pull some members of the board into the discussion, but you should take a run." And that set off a roughly three-week frenetic underwriting of the opportunity. It included a few of us going up to meet with members of the Starwood board and lay out our vision for the opportunity. And it was one of the most fascinating, intense three-week periods certainly of my career, I think for many Marriott leaders. But ultimately that three-week period led to us signing and announcing a letter of intent to acquire the company.
So I guess that really just shows the importance of grabbing that cup of coffee with somebody. I mean, imagine what would happen if you hadn't.
Yeah, the industry would look quite a bit different than it does today. But as you well know, that was in some ways only the start of the story of this transaction. Once we made that announcement, we got to the work of trying to get to definitive agreements. And then a competing bid came in, roughly a billion dollars higher from Anbang Insurance. And in some ways for me that was the most interesting part of the transaction because again that came in, again I think on a Friday. And Friday night late, Arne must have gone home, thought about the implications of that bid, considered whether we should revise our bid, and he sent an email to every member of his senior leadership team essentially saying, "What do you think?" Which, you and I have talked about this in the past, that's Bill Marriott's favorite question, "What do you think?" to get the unique perspective of every member of the leadership team. And again, the way Arne told the story, even though he sent it late Friday night, by the time he woke up Saturday morning, every member of the team had responded. And while each of us used different words, we had a pretty consistent point of view, and that was the intellectual and the economic and the competitive underpinnings that caused us to make our original bid have not changed, and we've got to update the underwriting at a new bid price. But we think we should continue full speed ahead because that thesis that had led us to sign the original letter remained intact, and that was ultimately what we did.
Yeah. So there was, you know, some little bit of, you know, back and forth between your bids and Anbang's, and then Anbang at some point, even just weeks after making its initial counter bid, they pulled out citing, you know, current market conditions, and that left you, you know, to be able to finish the race, you know, on your own.
That's right. And so after, you know, some more months of regulatory review and approval, you closed on the acquisition in September of 2016. You added Starwood's, you know, stable of brands, portfolio of hotels, both managed, franchised, and some real estate as well. We'll definitely get to the loyalty program in a minute, but I want to talk to you about how you integrated the brand in the hotel portfolio and the pipeline. I mean, that's a lot to bring in. So what was that process like as you led up to the closing? Obviously, among the challenges we had to navigate was antitrust review in dozens and dozens of countries around the world. That was complex, particularly because the combined portfolio in some select markets was quite significant. But thankfully we navigated that pre-closing. The other big learning that I think made the integration much better than any of us had perhaps anticipated was once we got in there and we started working closely with our counterparts at Starwood, we uncovered how culturally compatible the two companies really were. The way we thought about taking care of our associates, the way we thought about taking care of our guests, the way we thought about the stewardship of the assets, the way we thought about relationships with partners were much, much more similar maybe than anyone had anticipated. And that was invaluable as we worked through the complexities of the integration. Perhaps at the other end of the spectrum, some of the technology integration, if we underestimated anything, perhaps we underestimated some of the complexities of that technology integration. We obviously shortly after closing, a data breach was uncovered which added a whole another layer of complexity. We spent a lot of time trying to redraw our brand architecture and actually found the manner in which the Starwood brands complemented the existing Marriott portfolio was ideal. We may talk about luxury during the course of our conversation. But effectively doubling the luxury portfolio and extending our lead in luxury I think was one of the most important, maybe most underappreciated components of the transaction. So it was just as that three-week underwriting period was intense, the following six to twelve months of integration was just as intense. But that cultural compatibility I think fifty years from now when people look back at this transaction, that'll be the piece that really led to as seamless an integration as we experienced.
Yeah. I mean, to your point about what that offered Marriott in terms of further depth of its luxury offerings, particularly, I mean, I remember at the time when people, you know, they looked at the brand count that Marriott had at the time and they looked at how many Starwood would be bringing to Marriott, everyone's like, that's going to be, you know, 30 brands. Surely Marriott is going to, you know, sell off, you know, a couple or maybe even retire some. And the response from Marriott was, "No, we have swim lanes for all of them." And, you know, my question, I get a lot of questions around that even today about the breadth of the portfolio.
My answer is consistent because I really do believe it. We love the breadth of choice that the portfolio offers to our guests and to our owners and franchisees. You have guests that, if we're doing our job well, they want to concentrate their travel within the Bonvoy portfolio. And the scale of that transaction and the broadening impact it had on the portfolio really helps us achieve our broad objective, which is to make sure we have the right product everywhere you want to travel for any trip purpose. And the Starwood transaction made a quantum leap forward in terms of our ability to achieve that objective. And similarly, we had lots of really terrific, loyal, long-tenured owner and franchisee partners who wanted to continue to grow with us. And in some markets, we didn't have an available brand prior to the transaction. And so this opened up a wealth of additional growth opportunities for our valued partners.
So as you look back, you know, over the past 10 years and you examine what Marriott is like now compared to what it used to be, what are the main changes that you see within, you know, the structure and operations of Marriott?
Yeah, a few things. I think obviously that dramatic increase in our footprint allowed us to realize some economies of scale across almost every facet of our business that we might not have been able to achieve prior to the acquisition and integration. The ability to accelerate the growth of the Starwood brands. In fact, if you look at the last five years and you compare it with the last five years of Starwood as an independent company, we've actually grown the Starwood brands by almost 70%. So, a very rapid growth story for the legacy Starwood brands. We talked a bit about luxury. The ability to lengthen that lead that we enjoy in luxury I think was a transformational component. And then you talked a bit about loyalty. In anticipation of our discussion, I went back and looked just before we closed on the transaction, our old program Marriott Rewards had 56 million members globally. And you contrast that today. I was in Shanghai a few weeks ago and welcomed our 300 millionth Bonvoy member. And so the reach and the appeal of that loyalty platform has grown remarkably over the last decade.
I absolutely do want to talk about the loyalty side of things. I mean, you brought on SPG, you combined that with the Marriott and Ritz-Carlton rewards programs, and I mean, I was going to say as of your last earnings call, it was 295 million, but now it's over, you know, you got 300 million. So, let's talk about the evolution of the hotel brand loyalty program and the elevation of Bonvoy into the brand that it is today.
So among the things we learned quite quickly during our diligence for the transaction, SPG had a fiercely loyal and passionate member base. They loved the program, they loved the portfolio, and we knew there would be understandable trepidation from those passionate members. The thesis was if we can bring these two portfolios and these two groups of loyalty members together, while there would be a natural concern about change from the SPG members, the hope was that would be more than outweighed by the ability to truly concentrate their travel in a single program because the breadth of the options would be so much broader. And as we sit here a decade later, that thesis has largely been proven out. Whether I'm talking to individual members, whether I'm participating in Bonvoy member forums around the world, that is largely what you hear pretty consistently from our membership. Now, are there members that still sort of think fondly about some facet of SPG that has evolved over time? Of course. Have we made every single member perfectly happy? Of course not. But when you look at both qualitative and quantitative feedback that we get from the members, I think the vast, vast majority of our 300 million members are pleased with the evolution of the combined platforms. Number one. Number two, I think their appreciation and passion for the program has grown exponentially as we've evolved the program. So, as you well know, all of these loyalty platforms in their early days were fairly rudimentary. You enrolled, you earned points for hotel stays, you accumulated those points, and eventually you redeemed them for a hotel stay. And while that component of the program remains foundational, we've moved well beyond that with things like Marriott Moments and the ability to access these once-in-a-lifetime travel experiences. And I think the scale of the program and how that scale translates into the access that our members have to these really unique experiences has further strengthened the passion and the loyalty that our members have.
I'd like to take a wider look at the impact that Marriott buying Starwood has had on the hotel industry at large. Where do you see the effects of the acquisition, both overall and in particular with the other brand companies resulting from the deal? What has this deal meant for hoteliers over the last 10 years?
Well, it's a good question for my friends that lead our competitors, but from where we sit, a few things. I think it is a pretty powerful illustration of the importance of scale and the benefits of scale. I think it is an important illustration that building these loyalty ecosystems and trying to make these systems as sticky as possible, to do everything in your power to pull members into these ecosystems and keep them in there through your ability to meet all of their travel needs on a global basis and enhance that stickiness by using the loyalty platform to open up this world of experiences is critically important. I think it has, you know, you talked about us effectively doubling our portfolio of brands. If you look across the industry, I've not done the math, but you've seen dozens and dozens and dozens of new brands, whether they were organically developed or acquired through an M&A transaction. I think the Starwood transaction has illustrated the power of these broader brand portfolios, and I think you probably hear our peers talking about it in the same way, that they also really appreciate the breadth of choice that a growing portfolio offers their guests and their owner community. We've seen the impact of our industry-leading scale on the distribution landscape, our ability to work with intermediaries, and the power that that industry-leading distribution gives us in those discussions. Now we find ourselves on perhaps the eve of another significant plate shift in the distribution landscape, which is the impact of emerging technologies and AI on travel distribution. Again, I think we feel really good about our industry-leading scale and how that will serve us as we navigate this emerging landscape.
