Marriott International's (MAR) CEO Arne Sorenson on Starwood Acquisition Update Conference Call (Transcript)

| About: Marriott International, (MAR)

Marriott International Incorporated (NYSE:MAR)

Starwood Acquisition Update Conference Call

March 21, 2016 08:00 AM ET

Executives

Leeny Oberg - EVP and CFO

Arne Sorenson - President and CEO

Laura Paugh - SVP, IR

Betsy Dahm - Senior Director, IR

Analysts

Felicia Hendrix - Barclays Capital

Tom Allen - Morgan Stanley

Ryan Meliker - Canaccord Genuity

Joe Greff - JPMorgan

Robin Farley - UBS

Shaun Kelley - Bank of America/Merrill Lynch

Steve Sakwa - Evercore ISI

David Katz - Telsey Group

Operator

Good morning, ladies and gentlemen and welcome to the Marriott International Conference Call. My name is Rhiannon and I'll be your coordinator for today's conference. For the duration of the call, you'll be on listen-only. However at the end of the call, you'll have the opportunity to ask questions. [Operator Instructions]

I'll now hand over to your host, Leeny Oberg, Marriott's Executive Vice President and Chief Financial Officer to begin today's conference.

Leeny Oberg

Good morning. Thank you all for joining us on such quick notice. Joining me today from Cuba is Arne Sorenson, Chief Executive Officer of Marriott International and in Bethesda I'm joined by Laura Paugh, Senior Vice President, IR and Betsy Dahm, Senior Director, IR.

As always, before we get into the discussion today, let me first remind everyone that many of our comments are not historical facts and are considered forward-looking statements under federal securities law. These statements are subject to numerous risks and uncertainties as described in our SEC filings, which could cause future results to differ materially from those expressed and/or implied by our comments. Forward-looking statements in the press release that we issued this morning, along with our comments today, are effective only today, March 21, 2016, and will not be updated as actual events unfold.

To begin with Arne has some opening remarks.

Arne Sorenson

Thanks Leeny and thanks to all of you for joining us on such short notice. So let's get started, today we are announcing Starwood's acceptance of our revised bid to acquire Starwood Hotels & Resorts. We have outlined our interest in Starwood over the last five months in presentations and in our proxy statement, in the further diligence we've completed in the last five months we have become even more convinced of the tremendous opportunity presented by this merger. That confidence is reflected in our higher offer.

We now believe there are more cost synergies than we estimated in November. We are also helped by a more efficient deal structure with a greater percentage of cash and finally we were helped by a modest recovery in our stock value in these weeks, as the disconnect between stock performance and hotel fundamentals narrowed considerably.

To go through the terms, I'd like to turn things over to Leeny.

Leeny Oberg

Right. For those of you, who maybe following on the Slide deck that we put out, we're on Slide 3 and as Arne mentioned our new deal with Starwood has a meaningfully higher cash component to it. We've increased the cash consideration from $2 per share to $21 for every share of Starwood common stock. Also in the revised deal, we've a new exchange ratio of 0.8 shares of Marriott common stock for each share of Starwood common stock. This basically takes us to issuing roughly 20 million fewer shares or about 14% pure shares of Marriott than the original agreement. This makes our total consideration to Starwood shareholders of $79.53 per share, not including the value of the timeshare business based on last Friday's closed, for a total of 13.6 billion.

After we've had extensive due diligence and spending a lot of time with the Starwood team in joint integration planning, we increased our targeted annual G&A cost synergies to $250 million, up from 200 million. And excluding any benefit from even more incremental cost savings beyond the 250 and additional revenue synergies which we're confident, we'll provide, we expect adjusted EPS to be roughly neutral in 2017 and '18. We expect to retain our investment grade rating with our strong cash flow generation and we're committed to that end.

In terms of the process and where we go from here, we'll be updating our Form S-4 with a Form 8-K by the end of this week. We expect to file that in a couple days. We'll have a special stockholder meetings rescheduled for April the 08th, the record date will remain February 02, but we'll now have the stockholder meetings on April 08. As most of you know, we have cleared the pre-merger antitrust review in the U.S. and Canada and the processes for approvals from the EU and China are on their way and currently pending. At this time, we still continue to believe that the closing would be in mid-2016.

And now in terms of talking about the overall highlights from this transaction, I'm going to turn it back over to Arne.

Arne Sorenson

So, as we talked about in November and we've had a chance to talk with many of you about -- in the months that followed. We're excited about this for a number of great reasons. Obviously, the merger of these two companies will create the world's largest lodging company, with about 5,700 hotels around the world and 1.1 million rooms. Big is obviously good but better is better. And really what we're focused on is not just the size, but we're focused on the breath of choice that we offer to our customers and the power of some of the platforms we can build. That starts with the 30 brands that the two companies have already in the marketplace. They include particularly strong positions in luxury and lifestyle and of course broad distribution around the world. We think that we will find economies of...

Leeny Oberg

Rhiannon I don't know, if you can hear us but from our side we've lost Arne.

Operator

Yes Arne's line is disconnected. I'll try my best to get him back on the line now.

Leeny Oberg

All right, we will continue on in his absence. All right, so we're still for those of you who are on the deck we're on Slide 5 and as Arne was talking about that the economies of scale from this combination will allow us to compete meaningfully better in today's world with technology disruptors. We also think the combination of Marriott Rewards and Starwood’s Preferred Guest create a really powerful loyalty program that will be the best in the lodging industry. With significant revenue and cost synergies that really stretch both for the combined company, as well as for the property level hotels. We will continue to have attractive financial profile with an investment grade balance sheet and significant free cash flow.

And now what we're going to do is walk a little bit through each of the opportunities where we see tremendous opportunity to create value. Hello?

Arne Sorenson

I'm back on, can you hear me?

Leeny Oberg

We can hear you Arne. We're up to Slide 6 Arne, if you'd like to start it there. We're at the top...

Arne Sorenson

All right.

Leeny Oberg

...of the opportunity to create value.

Arne Sorenson

Why don’t you [Multiple Speakers] Leeny go ahead and take it up to Slide 6, I'll pick it up on 7. I apologize everybody.

Leeny Oberg

All right, thanks. No, that's alright. So, as we were talking where we see some unique opportunities to create value which we'll take a little bit more in detail are across a wide variety of areas of our business. First of all in enhanced loyalty programs, we will dramatically increase access to new customers, creating opportunities for new partnerships, and provide greater competiveness by such -- having such a big platform.

On the sales integration side there's really kind of benefits for both sides, there's both exposure to Starwood’s brand-loyal and affluent guests, and also benefitting the Starwood hotels who are expertise in corporate, group and mid-market accounts. There are also benefits for the Marriott hotels with being able to make sure to connect with all of Starwood’s customer base. On the 30 brands we're confident that we can position them against distinct and profitable customer segments and we'll take you through some of our thoughts there.

We've also through our work with Starwood gained greater confidence in achieving the G&A cost synergies. Similarly with working with them, our view of being able to accelerate rooms growth in certain underpenetrated markets. With this similar business models of the two companies we're confident of being able to maintain our attractive balance sheet and produce meaningful significant cash flow on a sustainable basis and also through the building of these two companies, enhancing the competitiveness of Starwood's brands.

And with that we'll turn to the Loyalty programs and Arne we're on Slide 7.

Arne Sorenson

Okay on slide 7, this is really about the loyalty programs and as we've talked about this is one of the most profound advantages we think of this merger. We believe that initially with the loyalty programs, we'll run them in a parallel way, Marriott Rewards in SPG.

Leeny Oberg

Rhiannon I think we've lost him.

Operator

Arne's line is still connected to our and if you want to...

Arne Sorenson

[Multiple Speakers]

Operator

Yes.

Arne Sorenson

Longer term we'll look for a combined platform. We think that this will generate a hotel loyalty program that truly meets everything our hotel guests could want. And believe we can position this program so that customers can conclude, there's really no other program that they need to be members of. In size, in choice and in the recognition we can provide to our guests, I think this loyalty ecosystem gives us the best tool we can possibly have to compete in the digital marketplace.

Well there'll be strength in every segment of the lodging industry, luxury and lifestyle will be key areas of strength. We'll also bring our expertise to frequent business travel to this large global program. And with the advantages of investing in only one platform, we expect to be able to accelerate spending not just on the infrastructure, but on tools that allow us to get to know our customers better and to personalize our relationships with them. And of course a strong program will open up more partnership opportunities, including with our great credit card partners -- co-brand credit card partners.

On the salesforce which Leeny talked about briefly, we think that we can create a salesforce which is stronger and more efficient, because of the power of these two platforms. That is bringing of course the Starwood Guest which is part of typically quietly loyal to SPG and skews a bit towards the lifestyle and the younger consumer. We think with St. Regis we will have another strong brand of a luxury space with our luxury global sales team spread around the world that can service that particularly demanding customer.

And then we've got great tools on the Marriott side as well, we've got a Marriott Convention and Resort Sales Network which sells resorts for meetings and for other events, and we would use that across the product platform and we've got great relationships with our corporate accounts that we can continue to streamline and make work better. And so we think we will have both, greater coverage across more companies and more efficient coverage as we go forward.

Leeny, I'm getting some noise on my phone, does it come across on the call as a whole?

Leeny Oberg

No, it sounds good, Arne.

Arne Sorenson

Okay, great. So, let's go to Slide 9 on Brand Integration. You'll be pleased to know, we're not going to talk about all 30 brands on this call, but generally we've looked at the brand line up and we see a lot that we like. I think all of you have asked in way or another whether 30 brands are too many, but it's important note that these 30 brands are already competing in the marketplace, with strength and with awesome sizable distribution.

As we look forward, we think St. Regis will be a brand that would continue to grow and probably see its growth accelerate. It can be positioned in a place that is distinct from Ritz-Carlton and it can be another brand that we can use in the fast growing luxury tier around the world, probably, particularly in Asia.

W is a brand with great momentum and great customer awareness and connectivity. We very much expect to continue to see it grow it is a very-very strong brand with many luxury hotels across the world. I think generally we would expect to position it just a little bit below addition, obviously W is a meaningfully bigger brand than additional and we expect to see it continue to grow.

With Element, we have a lifestyle extended stay brand which is our space that Marriott has no brands, we think as a consequence this will be a brand that grows quite quickly post-merger and we also think the Element could be an interesting alternative to some of the housing rental services the share economy platforms like Airbnb and some others.

And then we've got an interesting comparison between AC by Marriott and Aloft, both brands compete in the upscale space, both we'd describe as lifestyle imprints into that space, both have meaningful momentum but while they're positioning some respect similarly in terms of the segment, they have different personalities, we tend to think of AC hotels as being a more of a European lifestyle approach and Aloft as being a bit more of the western lifestyle approach. We think there are customers that are drawn to each of the two as there will be owners and franchisees drawn to each of the two.

We'll talk a little bit about cost synergies, which is on Page 10 for those of you who are following along. We've been working extensively since we announced this deal in November to prepare for integration and of course to understand each other's organizations and structures and start to think about how to melt those into one organization. Our teams have been working across the world, both at headquarters and above property levels but then around the world in the continents to understand the way of going about doing business and based on that work, we are now confident that we can achieve cost synergies of $250 million, up $50 million from what we've talked about in November and we believe those synergies can be fully achieved by the time we get to calendar 2018, if not before.

On Unit Growth Opportunity, we think there are a number of places where we can accelerate growth in the Starwood portfolio, first we should commend the Starwood team for the growth that they have already accelerated over the course of the last year or so, it's great to see that and great to see the momentum that's already underway. But again we think that with the relationships we have with owners and franchisees around the world, with the development team that we have all around the world and with a proven track record we have for growth, we can bring that growth to St. Regis and The Luxury space, we look at what's happened with The Luxury Collection and compare that on launch of the Autograph Collection just about five years ago, a branch which already has 100 hotels. And we think we can bring similar kind of growth to The Luxury Collection.

When we think about Aloft and Element, which I've talked about from a brand positioning perspective, we think plugging that into the Select Service Development team that we've got we have signed over 50,000 rooms last year that we will see both of these brands accelerate their growth as well.

And then to talk about the balance sheet a little bit. We obviously have moved a significant part of the consideration being offered to Starwood shareholders from equity to cash. We have talked about this with some of you before and everybody in the context of our year-end earnings call. To some extent we regretted the high use of equity in the deal that was announced in November, but believe at the time that was the best way to position ourselves to have it accepted by Starwood. Now with the opportunity that was presented in the last week, we have the ability to increase our bid, but while we did it to shift more of the consideration to cash and away from equity, cash is obviously the cheaper currency for us to use, it does drive a bit higher debt level at closing we think roughly will be between 3.5 times and 3.6 times adjusted debt to adjusted EBITDAR at debt close, but given the power of the cash generation machine that these companies represent, we believe we'll be well within our 3.0 to 3.25 target by year end 2016.

We are very much committed to returning to the Marriott model which is an asset-lite strategy, high cash flow production and a return of that cash flow to our shareholders to the extent they are not compelling opportunities to invest in our business and as a consequence we think we will quickly get back to the kind of higher ROIC and high capital return model that we've had in the past.

In terms of the brands, Sheraton obviously has been something that has been asked -- we've been asked about Sheraton a number of times and its particular interest, I think before talking about that brand specifically we should say generally that our notion here is that we can bring the RevPAR index of the Starwood brands closer to the RevPAR index of the Marriott brands that perform there. And again that will be through tools like this our loyalty program, like the salesforce that we've talked about, but also hotel distribution, brand strength and the operation tools that we can bring to it. As a consequence we think will drive both top-line and margin performance for our hotel owners, which obviously should help their economics for existing hotels and should make us more attractive from a growth perspective.

As it relates to Sheraton we are encouraged by the 10 point plan that Starwood put together last year. I think they're great tools in that to begin to drive a stronger and brand with more momentum for Sheraton. We think that generally the revenue lift and cost savings that we've talked about should improve brand economics for our hotel owners. And with those improved brand economics, we're optimistic that more renovation capital can be encouraged to improve the benefit of these -- the performance of these hotels.

While at the same time recognizing that some of the hotels which are pulling the brand back will overtime have to be defanged as Sheraton's, those are important conversations to have with owners and franchisees. They cannot happen with new standards overnight because this is something that we currently have to pursue, but I think with the long-term focus we are optimistic, but this is a space we've been in before with our owners and we can craft a plan which is very much to their benefit and to the benefit of the brand long-term.

I think before we go to questions, Leeny will talk just briefly about our quarter to-date numbers and our perspective about how business is.

Leeny Oberg

Thanks, Arne. In a separate release today, Marriott announced that we have reiterated guidance for comparable system-wide RevPAR growth of 2% to 4% for the first quarter and 3% to 5% for full year. Year-to-date through February, we saw a constant dollar RevPAR at our comparable system-wide hotels increase 3.4% in North America, 3.9% outside North America and 3.5% worldwide. Couple of comments overall is that, the managed full service hotels performed particularly well year-to-date, rebounding from some renovations and with some great Group outperformance. Outside the U.S. we've seen very nice performance in Asia-Pacific and although Europe is still perhaps lower growth than we'd all like to see, is still a bit stronger than expected. Not surprisingly in the Middle East we've continued to see struggles there.

With these numbers through the first two months of the year we still would obviously expect March to pull it down a bit given Easter, but again we continue to feel comfortable with the 2% to 4% range for Q1 and towards the upper-end of 3% to 5% for the full year. We also expect that on growing our rooms that we expect that gross worldwide rooms will increase 8% total, but 7% net for the full year. We're pleased with what we're seeing so far on both openings and signings. And just kind of from a perspective from the whole industry in the U.S., we continue to see that Smith Travel projecting that on demand side that growth would be higher than supply for '16 and '17. And with supply still under its long-term average of 2 to a little bit over 2.

And with that we'll turn it over Rhiannon for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Felicia Hendrix from Barclays. Please go ahead.

Felicia Hendrix

So the -- your full kind of prepared remarks I think were set up to answer this question I will ask. It does sound like there is a bit of a strategic change since you first announced this transaction. The way it was positioned originally that this was opportunistic and it wasn’t -- originally you walked away in April at a certain price, so just wondering in light of the On Bong offer it is obvious but if you could just kind of talk about strategically what really have changed the fact someone coming in with a higher offer?

Arne Sorenson

[Multiple Speakers] I think in many respects the strategy part has not changed, but it does continue to evolve. So as we said in November when we started looking at Starwood nearly a year ago, we were less interested strategically than we were by the time we got into the process in October and obviously signed a deal in November. And I think initially, we did not appreciate as much as we do today the power that could be driven by particularly the combined loyalty platform and that this breadth of choices to our customers that were in that on loyalty platform.

By the time, we got to October, we obviously also saw a deal which was amazing financially and I think in some respects you can look back at that and say maybe in fact the deal was almost too good, which is potentially what drew another bidder in here at the last possible moment. And so, obviously we've spent lots of time in the last week, talking through what the right response is, really measuring whether or not the value can be created for our shareholders in continuing to pursue this deal. And we are absolutely convinced that the power of this merged platform, fully justifies what we have offered. To state the obvious, it's not as good a deal as the deal we were about ready to vote on and close at the end of March before the new offer came in, but it's still a deal that we're very excited about pursuing.

Felicia Hendrix

And can you just help us maybe Arne or Leeny, does this new deal or the new structure affect your current guidance for buybacks this year?

Leeny Oberg

Well yes. From the standpoint of knowing that we're going to go up to probably get close to the 3.6 times on our leverage ratio, we would expect that we want to bring that down to be between our 3 and 3.25 levels by year-end. I'll say this would -- our current model would still show us buying back a nice little chunk of shares in the back half for the year even with doing that, but yes it would change it a little bit. I'd also point out though that we're going to be issuing 14% pure shares in this transaction which will also help tremendously in that kind of equals out this acquisition.

Felicia Hendrix

Great...

Arne Sorenson

If anything the new structure of this deal is like an advanced share repurchase of $3.6 billion worth of stock.

Felicia Hendrix

And then just understanding the dilution and incretion is this dilutive in 2016?

Leeny Oberg

We expect it to be roughly neutral to EPS. Sorry, it's '17. Right, in '16, I would expect it to be slightly dilutive.

Operator

Our next question comes from the line of Tom Allen from Morgan Stanley. Please go ahead.

Tom Allen

So, two questions on the synergies, one, can you talk a little bit in more detail about what maybe quantify, what else you found to get from the 200 to 250 of cost synergies? And the second question is, you talked about getting storage brands closer to 113% RevPAR index. I don't think that's included in the synergies, so can you talk about maybe some -- what kind of incremental upside you could generate from that? Thanks.

Leeny Oberg

Well I'll start on the G&A side and Arne you can finish up wherever you would like, but on the G&A side, I think one of the benefits of our time with Starwood over the past four months, is being able to continent-by-continent, discipline-by-discipline go through and look at the way that their structured and the way that we're structured, to look at how responsibilities are going to be carried forward. One of the benefits we've got in combining these two companies is we're going to leverage our continental structures tremendously by adding a lot of managed hotels to their systems, which if you think about it from an incremental flow through just on the continent admin side is tremendously helpful.

And then when you look at the fundamental a corporate disciplines in many cases, we're adding volume to structures that are already in place in terms of finance, HR just basic structures of running the company where a lot of them are fixed cost, where we're not going to have to add a whole lot of people to add on the business. So when we went department-by-department and area-by-area, as you may remember we had always said, we were expecting to do at least 200 million and I think our homework has allowed us to feel comfortable with committing to 250 million.

Arne Sorenson

With respect to the Hotel top-line and margin performance, this was an area that I carry in my briefcase actually about a dozen of very specific ideas for each one of those things which we're optimistic we'll be able to achieve, but because we are still competing with each other until this deal is closed, we will continue to compete. We have not had a chance to go through Starwood's hotel level P&L for example and sit down and compare them side-by-side as if this was already our business. But we do know that there are areas like procurement, there are a number of system areas where we can combine two systems into one and share it across a broader platform and therefore deliver efficiencies to the hotels. And we also know that there are opportunities through the loyalty programs and through the salesforce to drive incremental share for those hotels.

So, we are quite optimistic and have set targets that would apply across the organization, to driving both top-line and bottom-line improvement for our hotel owners and franchisees. That will in turn drive an increase in fees for us that is not factored in. I think there are two reasons to really why we've not factored that in, one is, we have not completed for the reasons I've described the full analysis that allows us to be specific enough and reliable enough in that, and second that some of those things will be quicker than others. I think some things we can probably start to deliver within a few quarters after closing, some of them will be more of a few year kind of project before we really deliver those results.

Tom Allen

And just a quick follow-up, so your RevPAR year-to-date have been trading at 3.4% in the U.S., if we look at the Star reports I think up or up-scale to close to 2.8, what's driving that outperformance and do you expect that to continue throughout the year? Thanks.

Leeny Oberg

So, again I'll start and then Arne if you are free to fill in, first of all as I mentioned before we've definitely seen a good rebound from a number of renovations that we're very excited about at our hotels, as well as Group outperformance. What we're seeing for Group for the rest of the year actually looks like growth over 8% for the remainder of the year. So, we feel very good about how that segment of the business is performing and we're seeing some improving trends on the transient side as well.

Laura Paugh

And Thomas keep in mind that SPR data is non-comp hotel, the data we produced is comp hotels and so you do get variances from time-to-time of this nature.

Leeny Oberg

We have been very happy with our share, with our RevPAR index year-to-date, has been terrific performance for our brands.

Operator

Our next question comes from the line of Ryan Meliker from Canaccord Genuity. Please go ahead.

Ryan Meliker

I just had a couple of questions with regards to how you guys are thinking about the back and forth with Starwood and obviously you don't want to negotiate on a call, so I'm not asking for that, but I just want to get some better understanding as to your appetite it seems like end with a lot of capital and could usually come back with a higher bid, yet it seems like this is a deal that is accretive long-term, but maybe neutral near-term, are you willing to do anything beyond neutral near-term I guess if ending does come backwards this basically -- this is going to be what it is and if ending comes back so be it?

Arne Sorenson

Ryan you're absolutely right, we're not going to either negotiate in public nor really expect to make about the things we don't know how they will evolve, you should -- I think it should be obvious to folks that we substantially improved the offering that we had on the table before and we think we've tied up something which is compelling to Starwood shareholders in terms of upfront compensation and we think it's compelling to the shareholders of the combined companies in terms of what we can accomplish. And that is something that we think is unique at least among those that are bidding for this, so it's creating a platform which because it brings strength from two companies has the ability to create enormous value and that's why we are excited about this, that's why our focus is now turning towards the integration efforts and giving the proxy then of course beginning to shareholder vote as quickly as we can. And we'll have to see what happens with others with -- if anything.

Ryan Meliker

Yes and now I think that makes sense, so I guess so I'm not going to trying to understand not wanting to comment on some of the things you don't know or also don't want to negotiate publicly. I guess when you think about the evaluation you came to, it looks like just back of the envelope analysis, it's about 11.5 times 2016 EBITDA for Starwood, when you factor in $250 million in cost synergies that you'd get on a run rate basis and that's roughly neutral to where you guys are on an EBITDA with multiple basis for 2016, was that a driving factor behind this particular evaluation, so that it was neutral near-term?

Arne Sorenson

Well, obviously we looked at the earnings accretion, we looked at the EBITDA multiples and we would prefer a deal obviously which had near-term and material accretion and we thought well let's put a bid together that is compelling enough hopefully to carry the day. And at the same time at least preserve our company from any near-term dilution, so that we can then get to work and drive incremental value that hopefully will drive accretion sooner rather than later.

Operator

Our next question comes from Joe Greff from JPMorgan. Please go ahead.

Joe Greff

Arne, can you talk about your confidence in divesting Starwood's owned assets, has it increased over the past several months? And then more specifically to your knowledge is On Bong looking at buying any of Starwood's owned assets?

Arne Sorenson

I have no idea on the second question. The asset sale process is very much being run by Starwood's team and again because we're separate companies we're not privy to every detail of their negotiations and by and large Starwood is not coming to us and saying, here's where we are, what would you like to do in this space? And so there is -- we've less than perfect information, but I think generally, we are aware of a number of assets where negotiations are ongoing and we remain pretty optimistic about Starwood and then the combined company's ability to go to the asset like model and sell these owned hotels for a kind of capital that's built into our model. So we feel good about that obviously the -- a lot of this depends on sentiment in the marketplace, sentiment would have probably added to more or less in January, it's gotten better since then. I think even in January, good progress was being made towards selling some of these hotels and some in fact were sold which you've seen Starwood announce.

Operator

Our next question comes from Robin Farley from UBS. Please go ahead.

Robin Farley

So I saw in the release that the Board no longer sees the consortium bid as the superior proposal and therefore can negotiate more but just to understand, if the consortium comes back without their bid and in that case Starwood would be able to reengage and do further negotiations with them?

Arne Sorenson

Generally it would be the same process I think that laid-out in the last couple of weeks. So, if another bid came in it’d we have to assess whether or not that bid was worth pursuing and if it was worth pursuing then there would be certain time limitations on the way they have pursued it, but generally they are not barred contractually from considering other alternatives that come in over the transom.

Operator

Our next question comes from Shaun Kelley from Bank of America/Merrill Lynch. Please go ahead.

Shaun Kelley

You spoke in the slide deck a lot about reaccelerating kind of net unit growth here across on the Starwood's brands, but I'm curious now that you have gotten into this some of the response from the ownership community at Starwood today about the deal, and is there anything baked into your assumptions in terms of churn or radius restrictions, as it might relate to some of the full service brand overlap in some of your key markets?

Arne Sorenson

I think, we've had lots of conversations with other franchisees, of ours particularly it won’t surprise you to know that many of them also have investments in Starwood branded hotels. I think generally what we hear is a strong alignment with the strategy, strong alignment that we can create something that delivers value to the portfolio of hotels in the system. And so a lot of excitement around particularly from our franchisees in the United States and renewed focus on some of the Starwood's brands and then excitement about pushing for development of those brands.

At the same time, whether it's around radius restrictions or whether it's around individual markets and individual hotels, of course kind of every owner who is thinking about are, what is the impact precisely of this deal on this specific hotel, and there we're still early in the process, we've obviously not engaged with anybody to talk about an individual market or an individual hotel, because we don't have that level of detailed information. But we would expect because these are hotels in the market, these are brands which are already competing in the market that we'll be able to move forward. And we don't think growth will be compromised, we think growth will be enhanced.

Shaun Kelley

And then one other specific one, you're still waiting China regulatory approval and given the nature of the counter bid just any insight or color you could give us on at least timing around that approval or show where you stand in that process?

Arne Sorenson

Yes, we are well into that process, we think it's going well, we don't think that the fact that there was a Chinese bidder than entered the phrase here that this is a political issue, we don't think of it as a political issue and we don't think, there's any reason to believe that MOFCOF in China will think of this as a political issue. And so we would expect still that that clearance should be obtained in a way that allows the transaction to close mid-year.


Operator

Our next question comes from Steve Sakwa from Evercore ISI. Please go ahead.

Steve Sakwa

I just wanted to follow-up I guess on Slide 5 on the significant revenue synergies, I know you've talked a lot about the cost side, when you sort of think about the revenue synergies, are you really thinking about accelerated unit growth between all the brands or is this more on RevPAR and maybe taking kind of Sheraton that you sort of talked about in the presentation and improving its position within the market?

Arne Sorenson

Well, I think it's all of the above, although usually in the events we're talking about revenue synergies, we're talking about existing hotels and how to drive their RevPAR index higher. And of course if we do that we will also drive unit growth, which will drive our revenue higher as well. But starting with the focus on hotel level revenue for existing hotels I think and we'll use the one example maybe to illustrate this. SPG is a powerful program, there is no doubt about it, it's got a strong group of elite loyalists, a strong group of loyalists who like the brands, who like the way Starwood treats them when they travel, but too often they do not have a Starwood hotel that is available when they travel. And as a consequence they end up hopefully staying with Marriott, but sadly they don't always stay at Marriot and so sometimes they stay at some of our competitors.

And I think by pulling these two programs together overtime and for finding some connectivity, so even sooner than that we'll see for example that those SPG guests find places within the network that they can stay in our influence, which should allow us to take a greater share of their wallet than Starwood and/or Marriot and/or the two combined have today, that's one example. I think beyond that we talk about the salesforce, we will I think not reduce the number of people who are pursuing sales for the two companies but we're hopeful that we can take now multiple people calling on the same corporate customer and have them cover that many more customers, because they can essentially spread their portfolio, which also should drive increased capture from those customers. Those are the two of the examples on the revenue side, there are a number of others.

Steve Sakwa

And just as a follow-up, I guess when you sort of think about the impact I mean obviously the cost synergies is much easier to sort of quantify and get to the bottom-line, but when you think about I guess the comment you made about this field being sort of neutral in '17 and '18, does that imply that you're not assuming any revenue synergies in that calculation?

Leeny Oberg

Some are…

Arne Sorenson

There are no revenue -- none in the model. Yes, I am sorry Leeny go ahead.

Leeny Oberg

Sorry, I was just agreeing yes, there are no revenue synergies in the model.

Operator

Our next question comes from David Katz from Telsey Group. Please go ahead.

David Katz

So, understanding all of the strategic and operating benefits that go into this, if you could talk about how you think about the business -- the hotel business cycle or how you thought about it as you put this bid together. Given that it is approximately neutral through 2018, presumably it required you to think about kind of the business outlook through that period of time? Thanks.

Arne Sorenson

So, this has in many respects hasn't changed, although I suppose on the margins you could say maybe it should have. When we announced the deal in November because we were using all stock we -- one of the advantages of using all stock was that in fact we weren't risking the company if you will and we weren't -- we were using a currency which would rise or fall based on performance of the company of course but also based on essentially where we were in the cycle. And there are some -- more disadvantages to using the stock because the stock currency is more expensive than cash currency. Here we are now in March we've shifted the deal to be $3.5 billion roughly of cash and the remainder in stock that is not far off of our current leverage levels. And so while we feel good about where we are in the cycle what we feel there are a number of good years in front of us and I'll remind everybody that the cycle is really driven by GDP growth on the demand side it's not uniquely a lodging cycle which you should be thinking about. And you could all make your judgment about what you think happens with GDP, but we would expect that GDP would continue to grow in the U.S. relatively modestly, but positively in the 2% or a bit above 2% range and in that model we can drive top-line fee growth, and we can drive fee growth that is driven by unit growth and deliver really compelling EPS growth and shareholders returns. That doesn’t change with this acquisition.

If the markets grow faster obviously the combined company benefits from those trends. If the markets grow slower, we actually think we've not changed the risk profile of the company, because of still the healthy use of equity in the deal. And so in many respects we don't have to take a position about whether this is the time to buy from a cycle perspective, obviously we do give a lot of thought to where we are in the cycle and what we think the future is going to look like and we're positive about that, but I don't know that that necessarily would control the day either way in an event.

Operator


Thank you. That question concludes our call for today. I'd like to hand you back now to Arne for some closing remarks.

Arne Sorenson

Okay. Well thank you all for joining us on such a short notice this morning. We appreciate your interest in our story of course and hope you share the enthusiasm we have for this transaction which will create something that we think is truly remarkable, and will be a story that we relish kind of in the years ahead. Thanks for your time today and feel free to reach out to us if you got questions that we haven't got to. Thank you.

Operator

This concludes today's press conference. Thank you all for dialling in once again.

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