Under the cash and stock agreement, Hyatt management would retail control of the combined companies. Talks between the two companies have been going on for weeks.
Hyatt management would take control of the combined company if the deal comes to fruition.
Shares of Starwood and Hyatt both opened Wednesday trading sharply higher.
On Tuesday, shares of Starwood rose amid reports that at least three Chinese firms were vying to buy the hotel giant.
However, none of the companies have made an offer for Starwood, and it remains unclear if they ever will, sources told CNBC.
Starwood's stock Tuesday
Both Hyatt and Starwood declined CNBC's request for comment.
—CNBC's David Faber contributed to this report.