Starwood was being shopped aggressively for over 6 months, and Marriott wound up the high bidder in the eyes of the Starwood board. There was likely interest from foreign purchasers. Definite interest from Hyatt. Possible interest from IHG and Wyndham.
On the one hand, when the Marriott acquisition was announced, it seemed like they were buying Starwood on the cheap.
SkyCity Marriott, Hong Kong Airport
On the other hand, aided by strong investment counsel, Starwood wasn’t able to find a higher bidder. It’s hard to imagine that other hoteliers thought Starwood was worth more than Marriott is paying.
Now a consortium led by Chinese insurer Anbang has made an offer that’s about 20% higher than the current value of the Marriott deal, excluding the disposition of Starwood’s timeshare business (whose spinoff continues in the same manner under either arrangement).
Surely Anbang is overpaying. As a consumer I think that’s great. And it’s funny in a way, turning political narratives on their heads, for consumers to be excited by a large asset purchase by a Chinese company. They ride in as white knights.
Marriott says they will counter. It costs nothing to say that of course. Starwood cannot formally accept the higher bid until March 28 giving Marriott a chance to revise the deal. But the Anbang offer is:
- all cash
- 20% higher
Marriott has the advantage of a $400 million breakup fee, or ~ $2.37 a share based on 168.76 million outstanding Starwood shares. And arguably the Marriott deal contains $200 million in synergies.
It’s unclear to me whether Starwood pays the breakup fee and then Anbang’s consortium receives something worth $400 million less, or that $400 million in effect is a reduction in the value of the deal received by shareholders. The full deal terms haven’t been publicly released that I’m aware of.
But Marriott would need to go from ~ $63 in stock and $2 cash to at least something like $74 in cash in any counteroffer to be serious. And there’s only 10 days to put together that kind of financing.
This will be expensive if Marriott still wants in. They presumably already bid about as much as they were willing to at the time the transaction was announced in November.
If nothing else, Marriott’s managers are smart business people. They shouldn’t get pulled into a bidding war in which they’d overpay. So they’re probably wise to walk away.
Buying foreign assets is a way of diversify out of the Chinese Yuan. Even if they’re overpaying, with multiple bidders likely willing to pay $12 billion for Starwood the company’s short-term downside is almost certainly less than 10%. Nonetheless Anbang is likely overpaying, especially considering it doesn’t really complement their existing businesses.
On the other hand, the Anbang deal would also save the Starwood American Express card — so it should benefit American Express stock, and could help American Express’ Chairman hold onto the company.
It will also be interesting to see the ultimate disposition over time of hotel properties the insurer has acquired in the US (like the Waldorf Astoria in New York, which has a long-term management contract with Hilton) and is in the process of acquiring:
Nonetheless, for Mariott, the question is: is it worth paying 20% more, and taking on debt, to do a deal that may have been about as expensive as they were willing to pull the trigger on just a few months ago? My guess is that they are smart enough not to.