Shares of timeshare company Marriott Vacations Worldwide Corp (NYSE:VAC) fell as much as 11.9% in trading Monday after announcing a deal to acquire timeshare firm ILG Inc (NASDAQ:ILG) for $4.7 billion. Shares recovered slightly during the day and at 3:30 p.m. EDT they were still down about 9%.
Marriott will pay $14.75 per share in cash and 0.165 shares of stock in exchange for each ILG share. The combined company will have over 100 properties with 650,000 timeshare owners and revenues of about $2.9 billion.
The acquisition is expected to be accretive to Marriott Vacations Worldwide's income statement and there's speculated to be $75 million in annual cost savings within the first two years. The bigger benefit may be the exclusive access to Marriott Rewards, Starwood Preferred Guest, and Ritz-Carlton Rewards loyalty programs, which will be combined into one program with over 100 million members early next year.
Having scale can be a big advantage in timeshares, allowing customers to choose between a wider selection of properties. That should be the big benefit of this deal and the larger Marriott Vacations Worldwide platform should have a bigger pool of customers to draw from. Clearly, the market is seeing the downside in spending about $1.9 billion in cash and adding more debt to the balance sheet. But long-term I think this will be a good move for shareholders, even if the risk profile of the company is higher than it was pre-merger.