Marriott offered to pay $2 a share in cash and 0.92 of its own stock for Stamford, Connecticut-based Starwood, the companies said in a statement on Monday. The deal came after Starwood announced last month that it would separately spin off its time-share business, Vistana Signature Experiences, and merge it with a subsidiary of Interval Leisure Group.
Reuters adds that Starwood's shares fell as much as eight percent to $68.96 on Monday before closing at $72.27 while Marriott's shares fell as much as 3.2 percent, before closing 1.3 percent lower.
Starwood put itself on the market in April when board chairman Bruce Duncan said the company planned to explore a "full range of strategic and financial alternatives".
According to the sources, in July, a British multinational hotels company, InterContinental Hotels Group was in talks with the Hotelier for a possible acquisition, but these buzz was rejected by the InterContinental.
Starwood's Sheraton brand will be Marriott's second largest brand, but it makes up just 14% of the company, says Moody's.
Overall, executives of both chains said in the call with investors announcing the deal that they aim to create a combined company of more than 5,500 hotels with 1.1 million rooms worldwide, about 35% of the properties outside the United States.
"Greater scale should offer a wider choice of brands to consumers, improve economics to owners and franchisees, increase unit growth and enhance long-term value to shareholders".
Arne Sorenson the CEO at Marriott will stay on as the CEO of the newly combined company. the headquarters of the company will stay in Bethesda, Md.
The hotel company is acquiring Starwood Hotels & Resorts in a $12.2 billion deal.
Assuming that it receives the appropriate shareholder backing, the deal is expected to close by mid-2016.
Deutsche Bank Securities is the financial advisor to Marriott worldwide and Gibson, Dunn & Crutcher is its legal counsel.
As for how this development will unfold, Starwood has stated that this is simply the beginning of a long journey and the two companies remain separate for now, with no change to any programmes or reservations.
There has been plenty of rumor and speculation in recent months about what would happen to Starwood Hotels & Resorts since its board of directors decided to look for ways to maximize shareholder value. The company operates and franchises hotels and resorts under 19 brands, including the Ritz-Carlton, Bvlgari, JW Marriott, Renaissance Hotels, Marriott Hotels, Courtyard, Residence Inn, SpringHill Suites, Fairfield Inn & Suites and TownePlace Suites.