Marriott International Inc will buy Sheraton owner Starwood Hotels & Resorts Worldwide Inc in a $12.2 billion deal to create the world's largest hotel chain.
The combined company will own or franchise more than 5,500 hotels with 1.1 million rooms worldwide, giving Marriott greater presence in markets outside the United States.
Starwood, which gets nearly two-thirds of its revenue from outside the United States, had essentially put itself up for sale in April, when it said it was considering strategic alternatives.
Starwood shareholders will receive 0.92 Marriott Class A shares and $2 in cash for each Starwood share, the companies said on Monday.
This works out to $72.08 per share for Starwood, a discount of about 4 percent to the stock's Friday close.
Starwood shareholders will also get about $7.80 per share from the spinoff of its timeshare business and subsequent merger with Interval Leisure Group Inc.
Starwood shares were down 3.3 percent at $72.50 in premarket trading on Monday, while Marriott shares were up 1.7 percent at $74.01.
Starwood, the owner of St. Regis and Aloft hotel brands, 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.
"This greater scale should offer a wider choice of brands to consumers, improve economics to owners and franchisees, increase unit growth," Marriott Chief Executive Arne Sorenson, who will head the combined company, said in a statement.
Marriott said it expected one-time transaction costs of $100 million-$150 million related to the deal. The company expects the acquisition to add to earnings from the second year after it closes.
Marriott will expand its board to 14 from 11 members, following the closing of the deal, expected in mid-2016.
Up to Friday's close, Starwood shares had fallen about 14 percent since April 29, when the company said it was exploring strategic alternatives.
Lazard and Citigroup advised Starwood on the deal and Deutsche Bank Securities advised Marriott.
(Reporting by Ankit Ajmera in Bengaluru; Editing by Kirti Pandey)