What happened
Shares of timeshare company Marriott Vacations Worldwide Corp (NYSE:VAC) fell as much as 11.9% in trading Monday after announcing a deal to acquire timeshare firm ILG Inc(NASDAQ:ILG) for $4.7 billion. Shares recovered slightly during the day and at 3:30 p.m. EDT they were still down about 9%.
So what
Marriott will pay $14.75 per share in cash and 0.165 shares of stock in exchange for each ILG share. The combined company will have over 100 properties with 650,000 timeshare owners and revenues of about $2.9 billion.
IMAGE SOURCE: GETTY IMAGES.
The acquisition is expected to be accretive to Marriott Vacations Worldwide's income statement and there's speculated to be $75 million in annual cost savings within the first two years. The bigger benefit may be the exclusive access to Marriott Rewards, Starwood Preferred Guest, and Ritz-Carlton Rewards loyalty programs, which will be combined into one program with over 100 million members early next year.
Now what
Having scale can be a big advantage in timeshares, allowing customers to choose between a wider selection of properties. That should be the big benefit of this deal and the larger Marriott Vacations Worldwide platform should have a bigger pool of customers to draw from. Clearly, the market is seeing the downside in spending about $1.9 billion in cash and adding more debt to the balance sheet. But long-term I think this will be a good move for shareholders, even if the risk profile of the company is higher than it was pre-merger.
10 stocks we like better than Marriott Vacations Worldwide
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now… and Marriott Vacations Worldwide wasn't one of them! That's right -- they think these 10 stocks are even better buys.