MANHATTAN (CN) — Two hotel groups sued Marriott and Starwood Hotels this week to try to stop the $13.3 billion merger of the two giants, which would create the biggest hotel chain in the world.
Approved by stockholders of both companies in April, Marriott will pay $13.3 billion to acquire Starwood. The new company will have 1.1 million rooms in more than 5,500 hotels.
Cityfront Hotel Associates and Dream Team Hotel Associates say the merger would violate the Area of Protection clauses in their contracts with Starwood to manage the Sheraton Grand Chicago in Chicago and the Westin Times Square in New York City.
Sheraton and Westin are both subsidiaries of Starwood.
Cityfront and Dream Team, which operate out of the same building on Park Avenue, say they “took on enormous financial risk to fund the development and construction” of the two properties, collectively investing more than $500 million.
Sheraton and Westin agreed in the contracts that neither they or their affiliates would “own, franchise, manage or operate any other hotel within a certain delineated geographical region of Chicago and New York City,” nor merge with a company that would cause them to violate the agreements, the plaintiffs say in their May 10 complaint in New York County Supreme Court.
They say those promises “were the bedrock of that investment.”
The Sheraton Grand Chicago is downtown near Navy Pier, the Magnificent Mile and the Loop. The Westin Times Square is steps from Broadway theaters, shopping and Restaurant Row.
Marriott has 18 hotels in its Chicago area of protection, or AOP, area and 12 in New York. If the merger goes through, the plaintiffs say, the “AOPs will be littered with hotels which Starwood, and then Marriott, are barred from owning, managing, operating or franchising.”
The plaintiffs then “will be robbed of the benefit of their contractually bargained-for exclusivity and competitive advantage,” they say, as Starwood “collects and has access to virtually every piece of competitively sensitive data” such as room prices, policies and marketing strategies.
Starwood told its shareholders it had no contracts that would interfere with the merger, which is “grossly inaccurate and misleading, if not false,” the plaintiffs say.
Thomas Marder, Marriott vice president of global corporate affairs, said the company does not comment on pending litigation.
Starwood did not respond to an emailed request for comment.
The plaintiffs seek an injunction to stop the merger, and damages and punitive damages for breach of contract, breach of fiduciary duty, anticipatory repudiation of contract, breach of guaranty, aiding and abetting breach of fiduciary duty, tortious interference with contract, and unjust enrichment, plus costs and fees.
Their lead attorney is Todd Soloway with Pryor Cashman in New York, assisted by William Wallace III with Capital Legal Group in Washington, D.C.
- Ken Paxton’s Attorneys|Fight Felony Charges
- Engineers Soothe Nervous Panel on Bay Bridge