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Leading worldwide hospitality company, Marriott International Inc. (MAR - Analyst Report), recently entered into a non-binding letter of intent with Cape Town, South Africa-based Protea Hospitality Holdings to buy two Protea Hotels brands and the hotel management company that looks after these brands. The acquisition will strengthen the company’s presence in the African market.

Marriott intends to enter into a definitive acquisition agreement with Protea Hospitality by the end of 2013, and expects to complete the transaction by first-quarter 2014. However, the financial terms and conditions of the deal have not been disclosed. The company believes that this transaction will not to be accretive to its financial results in 2014.

Protea Hotels is one of most renowned hotel chains in Africa, focusing on hotel management, leasing and franchising. It operates through two brands — Protea Hotel Fire & Ice! and African Pride Hotels collection. Debuted in 1984, Protea Hotels now boasts as many as 116 properties with 10,184 guest rooms across South Africa and six countries in Sub-Saharan Africa including Malawi, Namibia, Nigeria, Tanzania, Uganda and Zambia.

This acquisition will help Marriott double its African portfolio by adding as many as 10,000 rooms thereby bringing the total to 23,000 rooms.

Post-acquisition, Protea Hospitality will continue to own the properties while Marriott will manage the assets under long-term management and lease contracts. Following the acquisition, 46% of Protea Hotels’ total rooms will be managed by Marriott, 40% will be franchised and the rest will be leased.

The African continent is set to witness a surge in demand driven by the resurgence of the middle class. These are the sole reasons behind the company’s acquisition plan.  

According to the United Nations World Tourism Organization (UNWTO), the African tourism industry grew at an average rate of 4% during the first half of 2013. Further, Africa’s GDP is expected to witness more than 5% growth over the long term.

We view this big ticket acquisition as strategically positive for both the parties. While Protea Hospitality will enjoy Marriott’s higher scale, Marriott will emerge as a stronger contender in the dynamic African market.

Marriott holds a Zacks Rank #2 (Buy). Some other hoteliers that are currently performing well include Choice Hotels International Inc. (CHH - Snapshot Report), Starwood Hotels & Resorts Worldwide Inc. (HOT - Analyst Report) and Wyndham Worldwide Corp. (WYN - Analyst Report). All these companies carry a Zacks Rank #2.

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