There was substantial interest in Starwood once the hotel chain was clearly on the block for sale. Three Chinese firms were supposedly seeking government permission to make a bid to buy Starwood Hotels. Hyatt was rumored to be the lead bidder.
There had earlier been speculation about a Starwood-IHG (or Wyndham) merger. Wyndham hired away enough Starwood talent that it’s recently been referred to as Wynwood.
Eventually Marriott submitted what was expected to be the winning offer.
SkyCity Marriott, Hong Kong Airport
Now Chinese insurance conglomerate Anbang Insurance Group has submitted a $76 per share all cash offer for Starwood hotels, throwing a potential monkey wrench into the proposed acquisition by Marriott which was expected to close following a shareholder vote March 28.
The offer is worth ~ $12.8 billion, or nearly 8% above the value of Starwood’s shares at Friday’s close.
Marriott’s offer was 0.92 Marriott shares and $2 in cash for each Starwood share held. That’s about $65.38, but excludes the spinoff of Starwood’s timeshare business (which in November was expected to yield $7.80 per share but is now reported to be worth $5.50). The two figures total $70.88, just about Friday’s close for HOT of $70.42.
Marriott issued a release re-affirming its commitment to the deal.
China’s Anbang Insurance Group which reports to have approximately 30,000 employees and over $250 billion in assets. The asset figure is nearly double its reported size when the group announced its purchase of the Waldorf Astoria in New York, and the company has grown through acquisitions. It recently purchased a large Korean insurance firm, was in the running to purchase Hyundai’s securities business, and owns media properties as well.
Anbang just came out with a purchase of Strategic Hotels, which owns properties such as the Ritz-Carltons in Laguna Niguel and Half Moon Bay, the Montage in Laguna, and the Four Seasons in Scottsdale and Jackson Hole. (Strategic Hotels had just been purchased by Blackstone Group in December.)
W Union Square
Normally we might expect ‘the higher offer to win’ but Anbang’s offer may not be quite enough to derail the Marriott sale, since the agreement with Starwood contains a $400 million breakup fee. We may need to see and learn more about the Anbang offer before drawing conclusions. Assuming as Traveling for Miles does that the $76 a share is firm and in addition to the $5.50 per share Starwood shareholders receive from the Vistana spinoff, the gap could certainly be large enough between the offers.
While Anbang appears to be offering a slight premium, and Starwood’s board will have to do its due diligence on the offer, it may not be enough. Though the increase in Starwood’s price in pre-marketing trading suggests at least some market participants think this will ultimately lead to a higher price for the company regardless of who the successful bidder is.
Still, it complicates the shareholder vote at the end of the month and underscores the narrative that Starwood was sold too cheaply. And it makes the apocryphal ‘Chinese curse’ certainly true: we’re living in interesting times.
They better hurry and close before Mr. Trump becomes President Trump…
I would certainly prefer to see Starwood acquired by Marriott rather than a Chinese insurance company (which could be nationalized whenever the Government and Party decide to do so).
i’m gonna guess that jetway isn’t SPG Platinum! The Chinese bid would leave current mgmt in place and they would be loathe to piss off SPG’s best customers. iow, the opposite of Marriott who already thinks they know best- best being no upgrades, no guaranteed late checkout, often no breakfast and unmemorable properties. Chinese buyers will do none of that.
Gary: The Chinese bid is all cash- cash wins over stock 9/10 even if equal. MAR will have to raise their bid if they want it. that said, Anbang has MUCH deeper pockets- if they want it, they’ll win.
The Chinese bid allows the Starwood Management Company to continue and not be diluted or corrupted by Marrriott International. This also preserves the Starwood creativity which will undoubtedly be eliminated and replaced by the cookie-cutter design of Marriott Hotels. Not to mention the issues with the loyalty programs SPG & Marriott Rewards. On the other hand, there is also the possibility that the new Chinese owners will pick apart the brands and sell certain ones off….so who knows. But I remain cautiously optimistic with this new bid for Starwood.
Being an SPG elite member, much preferred to have it NOT being taken over by Marriott (or pretty much any hotel chain other than Hyatt), so this is potentially good news for us even though it may be too late.
@JetAway
Why would Marriott be better than a Chinese insurance company? What’s Chinese history at nationalizing their multibillion $ businesses?
The Chinese value service very highly, and Starwood customers would undoubtedly be better off with this deal.
Real estate is generally over-valued the world over. If the Chinese was to over pay for US assets, go for it!
In the mean time, hopefully all the benefits stay in place.
Gary, if the deal falls through, who pays out the $400 million. If it’s Marriott, wouldn’t that actually act as an incentive to Starwood to tank the Marriott offer?
I hope the Chinese get the deal!
@Christian – Breakup fee gets paid by the party who initiates the contract-breakup. In this case, it’d most definitely be Starwood. There’s nothing stopping the insurance company from throwing in >$400mil as incentive for Starwood to take their better offer.
I’m not sure if Earnest Money is something remotely possible in a situation like this, since that could directly cover the breakup fee.