Marriott Corp. said yesterday it will acquire Saga Corp. in a $501.7 million deal that will make Marriott the largest institutional food service company in the country and the biggest stockholder-owned company in the Washington area.

Saga had rejected an unsolicited offer from Marriott last month, but agreed to the merger over the weekend after Marriott raised its bid by $65 million.

Saga's main business is providing food services for hospitals, colleges and corporations.

Adding Saga's $1.3 billion in sales to Marriott's revenue last year of $4.2 billion will enable the Bethesda company to bypass ARA Services Inc. of Philadelphia as the nation's largest institutional food service company. The merger also will enable Marriott to pass its Montgomery County neighbor Martin Marietta Corp. to become the largest public company in the Washington area.

Saga's board of directors unanimously approved the sale of the company after Marriott increaseed its month-old offer from $34 a share -- a total of $435.2 million -- to $39.50 a share.

"We think it's going to be a great fit," said a Marriott spokesman in announcing the merger. "We are in the same lines of business, and it will be a good merger." He said the company will begin buying Saga shares today and hopes to complete the acquisition by the end of August. After the merger, Saga will become a subsidiary of Marriott.

Saga's board of directors issued a statement saying it believes Marriott's new offer "is fair and in the best interests of Saga shareholders." It recommended that all Saga shareholders accept the offer.

A major provider of contract food services to colleges and universities, corporations and hospitals, Saga has operations that complement Marriott's high-volume food service to airlines, corporations and hotels. More than one-third of Marriott's $4.2 billion revenue last year came from its contract food service operations.

"The merger gives Marriott a very significant presence in the contract feeding business, with a major share in virtually every segment of the market," including colleges, hospitals and major corporations, noted John J. Rohs, a financial analyst with Wertheim & Co.

Additionally, the acquisition will give Marriott "major clout geographically across the country, with an opportunity to increase its share further," Rohs said.

At the same time, it will enable the company to continue to achieve its stated goal of an annual 20 percent increase in sales.

Like Marriott, Saga also is involved in the restaurant business, including Black Angus Cattle Co., Straw Hat Pizza parlors, and the Velvet Turtle, Grandy's and Spoons restaurants.

Marriott -- which operates Roy Rogers and Big Boy restaurants -- is not expected to keep all of Saga's restaurants, financial analysts said yesterday.

"Saga has had a problem with its restaurant group," noted Joseph J. Doyle of Smith Barney, Harris Upham & Co. "I would be very suprised if Marriott kept all of the restaurant group. In the most likely scenario, a number will be divested."

Saga's approval of Marriott's amended bid came a month after Marriott first approached the company with an unsolicited offer of $34 a share. At the time, the offer was $4.50 more than Saga's stock was selling for on the New York Stock Exchange.

But Saga's board of directors unanimously rejected the bid, with Chairman Charles A. Lynch saying "there is a reasonable likelihood that a higher price" can be obtained. As a result, Saga began holding discussions with a number of other companies that had expressed an interest in Saga.

Rejected by the Saga board, Marriott took its offer directly to Saga's shareholders, offering them the same $34 a share. As of Friday, only 700 shares had been tendered to Marriott, a Marriott spokesman said yesterday.

Saga stock closed yesterday at $39.37 1/2, up $2. Marriott closed at $175.50, down $2.87 1/2.