(Reuters) - Marriott International Inc will buy Starwood Hotels & Resorts Worldwide Inc for $12.2 billion to create the world's largest hotel chain with top brands including Sheraton, Ritz Carlton and the Autograph Collection.
The combined company will have over 5,500 hotels with 1.1 million rooms worldwide, giving Marriott greater presence in markets such as Europe, Latin America and Asia and allowing it to better compete with apartment-sharing startups such as Airbnb.
Airbnb, seen as a disruptor for the travel industry, is expected to eat into hotels' business as it signs up more and more homeowners, analysts warn.
About three-quarters of Marriott's rooms are in the United States. Markets outside North America had about half of Starwood's rooms, but accounted for nearly two-thirds of its revenue in 2014.
"Our success has been driven by our ability to anticipate market shifts and meet those changes head on," Marriott Chief Executive Arne Sorenson, who will lead the combined company, said on a conference call on Monday.
The deal, one of the biggest since Blackstone Group LP bought Hilton Worldwide Holdings Inc for $26 billion in 2007, could spark consolidation in the industry as other hotel groups look to gain scale.
Starwood shares fell as much as 8 percent to $68.96 on Monday, way below the offer price of $72.08.
Marriott shares fell as much as 3.2 percent to $70.43 amid weakness in stocks of hotels and airlines due to heightened concerns that the Paris attacks on Friday could curb travel.
Starwood's shareholders will get 0.92 Marriott Class A share and $2 in cash for each share held. They will also get about $7.80 per share from the spinoff of Starwood's timeshare business and subsequent merger with Interval Leisure Group Inc, announced in February.
Starwood, the owner of St. Regis and Aloft hotel brands, had essentially put itself up for sale in April, when it said it was considering strategic alternatives.
The company, which had a market value of $12.67 billion as of Friday, had reached out to InterContinental Hotels Group Plc, Wyndham Worldwide Corp and sovereign wealth funds for a possible deal since July, sources had told Reuters.
Marriott said it expected to incur $100 million-$150 million in charges related to the deal and save at least $200 million annually from the second year after the transaction closes.
Analysts said they did not expect the deal to face antitrust issues as the combined company would hold less than 20 percent of all hotel rooms in the United States.
Starwood shareholders will own about 37 percent of the combined company. Marriott expects to add three Starwood members to its board, which will expand to 14 members, after the deal closes in mid-2016.
Lazard and Citigroup advised Starwood on the deal and Deutsche Bank Securities advised Marriott.