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Marriott Vacations Completes ILG Buyout, Expands Portfolio

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Marriott Vacations Worldwide (VAC - Free Report) announced the completion of its merger with ILG, Inc., a renowned provider of vacation experiences. Marriott Vacations closed the deal on paying roughly $4.6 billion. On the completion of the acquisition, Marriott Vacation’s board of directors included two members from ILG’s board.

With financial advice by JPMorgan (JPM - Free Report) , Marriott Vacations provided ILG shareholders with a cash amount of $14.75 and 0.165 shares of Marriott Vacations common share for each ILG common stock.

Buyout Synergies

Marriott Vacation’s primary aim behind the acquisition was to improve its vacation experiences. On the completion of the merger, the company has successfully increased its footprint and currently has more than 23,000 global associates. It has more than 100 resorts and around 650,000 Owners and Members with its diverse portfolio, comprising seven vacation ownership brands. Also, the combined company’s exchange network and membership programs encompass nearly 3,200 resorts in over 80 countries.

Meanwhile, the company expects the acquisition to provide synergies worth $75 million. Further, the combined company is expected to generate more than $4 billion of total revenues and adjusted EBITDA of over $750 million.

Efforts to Boost Vacation Ownership Sales

The move resonates with the company’s efforts to further boost its vacation ownership product revenues. By acquiring ILG, the combined company will serve as the global licensee of seven upper-upscale and luxury vacation brands, including Marriott Vacation Club, Grand Residences by Marriott, The Ritz-Carlton Destination Club, Sheraton Vacation Club, Westin Vacation Club, St. Regis Residence Club and Hyatt Residence Club.

We note, in the first six months of 2018, the company’s sales from vacation ownership product have increased 3.9% year over year and the upside trend is likely to continue, given the acquisition synergies.

Our Take

Apart from gaining in terms of increased sales from vacation ownership product, we believe that the acquisition is likely to improve the company’s profit margins. Marriott Vacations is facing high costs from its vacation ownership product segment. In the first six months of 2018, expenses related to such services increased 8.9%. With the acquisition, the company expects the combined company to generate higher revenues that will more than offset the expense pressure.

The move can also be read as the company’s strategy to fend off competition. Notably, Marriott Vacations faces intense competition from big hotel chains like Hyatt (H - Free Report) and Marriott (MAR - Free Report) . Moreover, alternative travel platforms, providing vacation services, are increasing. Therefore, by merging with ILG, Marriott Vacations aims to boost its scale and market share and mitigate the prevalent competition.

Zacks Rank & Share Price Performance

Despite various sales-driving initiatives, the company’s high cost of operations and the intense competitive scenario have led its shares to underperform the industry in the past year. The company’s shares have gained 1% in the past year, underperforming the industry’s collective growth of 3.7%.




Marriott Vacations currently carries a Zacks Rank #4 (Sell). 

You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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