Marriott International Inc. (MAR) recently inked a definitive acquisition agreement with Gaylord Entertainment Co. (:GET). Per the agreement, Marriott will acquire the Gaylord brand and hotel management company for an upfront payment of $210 million in cash, by October 2012. However, the transaction is initially subject to Gaylord Entertainment's shareholders approval which is likely to be received in August.
Upon execution of the deal, Gaylord will continue owing its existing properties while Marriott will take over their management under long-term agreements for 35 years. Gaylord’s one-roof provision that offers comprehensive services to group meeting planners makes it a lucrative acquisition target.
The four Gaylord four properties are located in the country’s most compelling regions. The properties are namely Gaylord Opryland in Nashville, Tennessee; Gaylord Palms in Kissimmee, Florida near Orlando; Gaylord Texan on Lake Grapevine near Dallas, Texas and Gaylord National on the Potomac in National Harbor, Maryland, near Washington, D.C. The transaction will add as many as 7,800 rooms to Marriott's portfolio.
We view the deal as strategically positive for both parties, given that Gaylord will enjoy Marriott’s much higher scale advantage. Once integrated, Gaylord will likely leverage Marriott’s extensive cost savings and strong demand.
Over the last few years, Gaylord experienced a scarcity in capital accumulation due to ongoing troubles in global financial markets that restricted the company’s growth and brand-building effort as well as stock-market performance. As a result, Gaylord resorted to the evaluation of potential strategic alternatives and the latest agreement is the result of that initiative.
On the other hand, through this deal, Marriott will emerge as a stronger contender in the U.S. hospitality industry through market share gain especially in the arena of group bookings.
Marriott appears to be highly optimistic on the acquisition of this high-yielding portfolio. Marriott’s management anticipates earning an incentive fee in its first full year of services, and the transaction to be accretive to Marriott's earnings per share by approximately 2 cents in 2013.
Marriott currently retains a Zacks #2 Rank that translates into a short-term Buy rating. We are also maintaining our long-term Neutral recommendation on the stock.
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