On Friday Starwood’s customers and shareholders were excited by a Chinese group led by insurer Anbang making a substantially higher offer for the hotel chain than the pending Marriott Marriott acquisition deal.
Marriott Seattle Airport Atrium
Starwood informed Marriott that it intended to terminate their deal and enter into an agreement with this ‘superior proposal’. Starwood put off its shareholder vote. Under the agreement though Marriott had 10 days to counter. As I wrote on Friday morning,
The Anbang deal isn’t done yet. Marriott has the opportunity to counter. And the shareholder vote has been put off and not yet rescheduled. But this is a huge development — for Starwood’s investors, employees, and customers. (Investors, of course, are the group that would still benefit even if Marriott successfully countered.)
Marriott acted quickly, submitting a new bid for Starwood and Starwood’s Board has accepted it. It’s a mix of cash and stock, the value highly dependent on Marriott’s recently-volatile share price.
- Anbang’s offer, which Starwood’s board recommended declared superior on Friday, was $78 a share in cash.
- Marriott’s new offer is 0.8 Marriott shares and $21 in cash for each Starwood share. Marriott closed at 73.16 a share on Friday, valuing the deal at $79.53 a share.
The previous Friday Marriott’s shares had closed at 68.89, and would have valued this new deal at 76.11. The valuation is highly contingent on the price of Marriott’s stock.
And indeed Marriott shares were up on Friday when it looked like they weren’t going to acquire Starwood.
As of this writing, Marriott’s shares are back down on pre-market trading with this news.
Nonetheless this is a significantly-increased offer by Marriott. At current share prices, the earlier offer of 0.92 Marriott shares and $2 cash per Starwood share was worth $69.31. The new offer is 15% higher.
With about 169 million shares of Starwood stock outstanding, the offer goes from $11.7 billion to $13.4 billion.
I am genuinely surprised by the $13.4 billion offer. On Friday I wrote that while I expected Marriott to counter, that at this price they should walk away.
- Aided by strong investment counsel, Starwood wasn’t able to find a higher bidder among hotel chains despite shopping the company aggressively.
- Marriott, then, deemed the high bidder may have been overpaying to begin with (the usual outcome, dubbed the ‘winners curse’).
- Anbang’s offer was likely overpaying for Starwood just as they paid the most-ever for the Waldorf-Astoria in New York and gave Blackstone hundreds of millions in profits flipping hotel properties over a period of months with the Strategic Hotels deal.
- Marriott says the deal will not improve their earning in the first two years.
It’s easy to get institutionally committed to a deal, and wrapped up in winning. By spending well over an extra billion dollars, it’s far less likely that the deal’s synergies will overcome its cost.
SkyCity Marriott, Hong Kong Airport
It will be interesting to see how Marriott’s stock performs, and the ultimate price Starwood’s shareholders thus receive for their shares — whether Starwood’s board is indeed correct that there’s greater value in the Marriott offer. Regardless, Starwood shareholders are much better off than they were going to be under the original Marriott deal.
Nonetheless, now Starwood customers are back to wondering what their Marriott future looks like.
As an investor, I generally prefer share swaps over cash offers, because the cash usually results in a significant, and taxable, immediate capital gain. If I get shares, I can hold indefinitely, and, if I decide to, plan a sale when it’s tax-efficient (e.g., I have large capital losses to offset).
At this price, there will definitely be operating synergies from devaluing the SPG program. That extra B is coming from somewhere.
I hope Anbang teaches Marriott a lesson and keeps increasing the bid until it is just plain stupid to keep bidding. Then they can pull out and let Marriott foot the bill.
Marriott is definitely not thinking smart – the original price they were wanting to pay was already overpriced and now they are just getting deeper into a hole of no return.
With deals like this there surely will be huge devaluations to ff programs.
As usual with acquisitions, winning is losing.
Pity the fool Marriott shareholder – shareholder value burn baby burn.
As I wrote last time: “There’s a big difference between mostly dead and all dead.”
Which, now that I think about it, is why I’m still playing the miles game!
This is actually the worst of all outcomes for the loyalty programs. The higher the price Marriott pays in a winning bid, the worse the likely deval of the loyalty program due to aforementioned higher synergies required to offset the higher price. Synergies meaning cost cuts. Corporate managers get caught up in megadeals for ego reasons.
Although I would imagine Anbang’s advisors should have expected a counterbid, and had an even higher offer in their back pocket, as long as the Starwood-Marriott agreement allows for a Round 2, which it may not.
@David B – we’ll see what the value of the Marriott shares is at the time of closing (assuming that’s the outcome here)
Great news if they devalue the program. I can then cancel my amex cards and have a valid reason to give.
@Gary sez: “I am genuinely surprised by the $13.4 billion offer. On Friday I wrote that while I expected Marriott to counter, that at this price they should walk away.”
Imagine that! I remember what I also wrote on Friday and you came very close to calling me “naive”, while it was actually the other way around because your so-called “analysis” was nothing more than wishful thinking. I assumed nothing and was totally dispassionate about the whole thing, therefore, I was the wiser 😉
Marriott was in the driver’s seat and whether they topped Anbang’s offers depended on how badly they wanted to acquire Starwood. Now we know. One potential problem for the SPG program if Marriott does end up overpaying would be that the days after the acquisition are likely to be very lean and mean…
The headline writing here is bordering farce. AA “eliminating” holds. Marriott deal is “off”. Even with 15 words or less it’s not hard to capture nuance if on cares to, and to not do so certainly does nothing to rebut charges of baiting clicks. Declaring then asking AA for comment is not a strategy that engenders reader trust. Even Fox News knows to add “report” to its rumor based headlines or to clue readers in to when they are speculating. Your headlines need work. I can already predict your likely response if you make one but I do hope you consider these comments. Reader trust can gather critical mass and once lost is hard to win back. I only get 30 to 45 minutes to goof around on the Internet and the former go to sites in my bookmarks that drop off rarely come back, if you care.
@DCS I said Marriott could counter, and in fact they would counter. I thought they were savvier and more product to up their offer by such a big amount, likely overpaying. It’s not actually clear though that Marriott’s offer that Starwood’s board voted to accept is a better offer. We’ll see what Marriott’s share price is when the deal closes, if that’s the direction it goes.
@Gary — Please spare me interpretations of what you’d said because it is all recorded in the other thread. Just read it and see how far off you were. I just reread it and you have a pie in your face, Oh Thought Leader in Travel, for letting your wish dictate your “analysis” and thinking.
@DCS I think you have interesting glasses that frame what you read.
Right back at ya!
Except that I happen to have the “recorded” facts on my side…There is no way anyone else reading that exchange would reach any other conclusion than the one I did…