Marriott International will buy Starwood Hotels & Resorts Worldwidefor $12.2 billion to create the world's largest hotel chain with top brands including Sheraton, Ritz Carlton and the Autograph Collection.
The combined company will own or franchise more than 5,500 hotels with 1.1 million rooms worldwide and give Marriott greater presence in markets such as Europe, Latin America and Asia including India and China.
Marriott currently has three-quarters of its rooms in the United States. Starwood, which also owns St. Regis and Aloft hotel brands, gets nearly two-thirds of its revenue from outside the country.
Arne Sorenson, Marriott's CEO, told CNBC's "Squawk Box" on Monday that company officials were "dissuaded" at first. "But as the months went by, we saw a relative shift in the values of the company, so it made it more attractive economically, and we became convinced that there was more value that could be created with the two companies together."
Starwood shares fell on Monday, indicating investors were unhappy with the offer being at a 4 percent discount to the stock's Friday close.
"We have been in the business for a long time but Starwood is more global than Marriott is," Sorenson, said. "It's a good thing that we will have more sources (of growth) from around the world."
Starwood had essentially put itself up for sale in April, when it said it was considering strategic alternatives, taking about 14 percent off its stock up to Friday's close.
The company, which had a market value of $12.67 billion as of Friday, had reached out to InterContinental Hotels Group Wyndham Worldwideand sovereign wealth funds for a possible deal since July, sources had told Reuters.
Starwood's shareholders will get 0.92 Marriott Class A share and $2 in cash for each share held. They will also get about $7.80 per share from the spinoff of Starwood's timeshare business and subsequent merger with Interval Leisure Group announced in February.
Marriott said it expected one-time transaction cost of $100 million-$150 million related to the acquisition, which was expected to add to earnings from the second year after it closes.
After the transaction closes, the company is expected to add three Starwood members to its board, which will expand to 14 members.
The deal is expected to close in mid-2016, the companies said. Lazard and Citigroup advised Starwood on the deal and Deutsche Bank Securities advised Marriott.
--CNBC.com contributed to this report.