Marriott's bid for Starwood challenged in suit by hotel owners

A Marriott hotel in midtown Manhattan on March 21, 2016, in New York City.
A Marriott hotel in midtown Manhattan on March 21, 2016, in New York City. PHOTO: AFP

NEW YORK (BLOOMBERG) - Marriott International's acquisition of Starwood Hotels & Resorts was challenged by the owners of hotels in Chicago and New York who say the merger would violate exclusivity agreements.

Cityfront Hotel Associates Limited Partners, the owner of the Sheraton Grand Chicago, and Dream Team Hotel Associates LLC, which owns the Westin Times Square in New York, sued Marriott and Starwood in New York state court on Tuesday (May 10), arguing the merger would unfairly eat into their business. Sheraton and Westin are units of Starwood. The lawsuit seeks to block Marriott and Starwood from taking steps to finalize the purchase.

The plaintiffs say the deal would violate contract clauses that prohibit Starwood from owning, franchising, operating or managing other hotels within a specific geographical area around the two hotels.

Marriott is preparing to complete its deal to buy Starwood following a tumultuous bidding war. The purchase, valued at US$12.9 billion based on Monday's closing prices, would create the world's largest hotel operator by room count.

Marriott would add 10 brands including Sheraton, W, St Regis and Westin, along with a global following of loyal guests. Marriott currently has 19 brands, including its namesake hotels, in addition to Ritz-Carlton and Bulgari. The new company would gain power in negotiating commissions with online travel agents and be able to better compete with upstarts such as Airbnb. The deal is scheduled to close midyear.