Skift evaluates the Chinese offer for Starwood that would block Marriott’s takeover bid.
The bottom-line, no matter what anyone else tells you, is who makes the biggest credible offer to buy Starwood.
Contra the claim that “Starwood’s board has to determine whether or not it wants to go with this cash deal or whether it wants to go with Marriott, and see how Marriott’s stock does over the long term” they really won’t be deciding whether they think long-term Marriott’s stock will do better than cash now.
Westin Stonebriar
If they get more cash for their shareholders, those shareholders can choose to buy even more Marriott stock or anything else they wish. Turning down a substantially more lucrative offer isn’t just a recipe for shareholder lawsuits, it’s a recipe for successful shareholder lawsuits for a breach of the board’s fiduciary duty.
What’s more, Marriott’s claim of ‘synergies’ with the announcement of the merger totaled $200 million. The deal’s breakup fee is $400 million. So there’s not even a plausible narrative for Starwood’s board to turn its back on an offer that’s more than $600 million greater than Marriott’s, even assuming the Marriott deal captures full projected synergies.
While the Marriott deal has cleared US and European regulatory review, and though there’s no competition concerns with the Chinese acquisition, a large US foreign asset sale could entail some regulatory risk.
However NWA‘s “Gangsta Gangsta” pretty much summed up the decision tree here, Starwood’s life ain’t nothin but money. The only question for Starwood’s board comes down to how real the Anbang offer is and whether Marriott raises their offer.
Westin Siray Bay Resort, Phuket
Though consumers don’t weigh in the calculation, there’s little question that a Chinese buyout is best for customers.
- It means more competition in the hotel space rather than less competition.
- It means Starwood’s management stays more or less intact, driving a strategy that has been what attracted Starwood’s customers to the brand.
While there’s always the possibility of changes, there’s clear upside for customers in Starwood remaining independent (that it stays close to the same) and there’s little downside (since in a Marriott deal it’s likely to change anyway).
The counter to this is expressed by a representative of Fitch ratings,
“What Marriott has always said, and what seems logical to us is that a big reason for this merger is to enhance the loyalty program — to make it even bigger and better and keep it as best in class so they’re more capable in combatting competitors like Airbnb and other hotel companies or online travel agencies.”
Though I start with a healthy skepticism, this is more or less what Marriott CEO Arne Sorenson told me last week.
W Seoul Walkerhill
So what happens next: Starwood’s board has a waiver from Marriott to consider this deal through Thursday. They may issue a statement at that time or ask for more time. So we’ll hear something more this week while they attempt to ascertain the ability and willingness of the Chinese insurer to close on the all cash deal.
Given how much American Express wants to retain the Starwood co-brand credit card deal, Ken Chenault ought to be finding a way to participate in the funding.
If the Chinese deal seems real, Marriott may raise its offer. I’d be surprised if they did an all cash deal, took on debt to match.
At the end of the day, if Marriott doesn’t match Anbang’s offer for Starwood then one of the two entities is valuing the hotel chain wrong. Starwood is probably worth more in the hands of Marriott — given cost synergies (management layoffs) and greater scale with which to compete for corporate business and drive down commissions paid to online travel agencies.
When the Marriott acquisition of Starwood was announced the ‘consensus view’ was that Marriott was buying Starwood too cheaply. That may or may not be true. If Anbang outbids Marriott, you’d expect that they’re paying too much — affected by the “winner’s curse” — but since there seem to have been multiple bidders at at least the $12 billion price (including Hyatt) Anbang is unlikely to lose an amount more than hundreds of millions here so their downside is at least somewhat limited.
Thanks for the post!
Do you know how many outstanding shares of Starwood there are? I’m wondering what the breakup fee (assuming it’s applicable) would be per share.
@beachfan: about 168 million shares outstanding, so $400mm is just under $2.50/share.
http://finance.yahoo.com/q/ks?s=HOT+Key+Statistics
In very large bids a small numerically higher bid can be rejected as they are deemed substantially similar when taking into account all other factors. So firstly the Anbang bid would have to be substantially higher.
Secondly a very popular way in China to hide huge losses if for these state supported companies to get even more loans to buy a legitimate enterprise ( if correct in this case Starwood) which when merged hopefully drowns out the otherwise failure of a huge company. So the valuation of Marriott is likely based on how good a hotel operation the combined entity is whereas the Anbang bid is based on how cheaply can the Chinese goverment purchase social stability. They don’t really look like the same basis of valuation and this one side can have a very different valuation from the other
@marcus all sounds real interesting, but it is completely irrelevant. if anbang has the funds for the cash bid, starwood shareholders could give 2 f’s where it came from or what will happen in the future. IT’S A CASH BID! superior is superior. the market could crash the day a MAR sale finalizes and then MAR stock is worth substantially less. in contrast, the market could crash the day anbang closes and….. nothing. HOT shareholders would still have their cash. cash bids are always superior to the acquirED shareholders.
you tried to sound like you know what you’re talking about and failed. sorry… there’s no way you’re in the business spouting such nonsense.
Gary-
Is it too early to tell if Starwood transfers would be completed faster with Anbang as owner? Is there a government agency we can write to on order to ask that they include that as a condition of approving the acquisition? (Maybe the one that oversees mistake fare regulation).
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@Sam funny guy.
@Marcus the value of the new bid, as reported, is materially higher than Marriott’s.
People keep bringing up the breakup fee of $400 million. That means nothing to Starwood shareholders or the deal if Anbang is the high bidder. The fee is paid prior to closing and the shareholders get the full amount of the Anbang offer. The only current questions are a) Can Anbang close at the bid price and b) will Marriott substantially match or beat the Anbang offer.
@Abby
Got up on the wrong side of the bed? On your period?
Can’t imagine what was so offensive about Marcus’ post.
@Marcus @Phillip
Good points but Anbang has recently been moving to purchase a lot of big hotel assets as opposed to just big assets, that’s consistent with a PE firm wanting to make a very strategic and focused play in that area rather than indicative of knee jerk purchases meant to increase leverage or source funding. Plus there are 3 companies involved in the consortium (Anbang being the biggest one).
Anbang’s bid is much much higher even accounting for the breakup fees which makes me think they’re not only serious but have priced this to win (creating a disincentive for other players to also make bids by quoting a high price). Marriott is very unlikely to be able to match this since they weren’t that interested until they saw cost savings and are probably at the limit of what they want to pay.
Why are state supported enterprises so desperate to hide losses though? It’s not like they’re answerable to shareholders. Political mileage? Prestige? To keep their private investors money locked in?
Also I do think Starwood was seriously undervalued first time around. The price being paid was barely a premium on their market cap (then and now) and if you look at the company fundamentals, Starwood actually looks healthy and sound, this is hardly a sick company. On the contrary their rate of expansion in China (the highest growth market) over the past couple of years has been extremely impressive and more than all their competitors..combined. Their rate of expansion in other good markets like India, Turkey and Middle East has also outstripped those of their competitors. Basically, they’re having no issues getting management contracts and are in fact the top choice for developers (Their true customers). They have the most lucrative loyalty program (from them too, not just for customers), other companies would love to have their top 2% of guests generate 30% of the income and if hit by a downturn, it turns out that its not the guys at the top end that suffer as much, they 5 star hotels can drop rates, cut the variable costs (Staffing costs go way down as occupancy goes down for example) and while they will experience some margin compression, they’ll do fine. It’s the guys at the 2/3 star level that suffer as they have lesser room to go down, their margins were already thin and now you have the higher end brands slashing their prices and you get caught between a hammer and an anvil.
I’d say with its rapid expansion in the best markets, urban focus, continued innovation, higher end skew of contracts and lucrative loyalty program, I’d rather invest in Starwood than Marriott/Hilton/Hyatt/IHG/Accor.
The whole sell nonsense was a knee jerk from the public investors who want to see mid range and low end growth and management has to listen to the owners (stockholders), otherwise there was no point selling, if anything they should potentially buy others. Lot of chains going on market these days that could be better managed.
If Starwood wasn’t better managed and wasn’t generating the returns for the developers and owners (Their true customers) it wouldn’t be getting more management contracts (their true product) than their competitors combined in the growth markets.
Have a look at their pipeline in China/India/Turkey. Compare to Hilton/Marriott/Hyatt/Accor/IHG in the same areas, its a joke. Starwood is the apparent giant there and still growing (much faster)
Anbang has the cash. The Chinese have a huge appetite right now for investment outside China. Anbang just this week overpaid for Strategic Hotels in addition to their Waldorf Astoria New York purchase last year. There is no reason to believe they don’t have the cash to back up their offer.
@Marcus
what makes you think that Anbang is state-sponsored? While some of the state-sponsored enterprises still exist in China most are privately/stakeholder owned. Sure if you are big you gotta have some connection to the politicians but the same applies to businesses in the US.
i haven’t spend a night at SPG properties since last december because of the unknowns surrounding marriott merger.
last year, i had about 70 stays overall, of which 14 was from spg properties.
if the chinese indeed take over, i will definitely resume my usual interaction with spg.
Yes like many spg members i was gutted by the sale of Starwood to Marriott.
Starwood hotels do succeed, in the main, to make the customer feel special.
The hotel selection and range is great.
That Marriott group did not reassure spg members adequately, is their own doing, and as a consequence it seems most members were very much concerned about of what they would lose , not what they would gain. Marriott left us spg’s in limbo, and I’m sure Marriott were willing to screw us, while existing Marriott members ( the larger portion ) were benefiting literally at our ( spg ) expense. I understand the Chinese need a Hotel empire and hopefully they want to improve not milk the STARWOOD group empire.
There goes another great company from US to China
How about telling Trump this story, (or is he already aware)
@Paul,
While Anbang is not technically state sponsored, it has strong ties to the government – the official founder’s wife is the grand-daughter of former supreme leader Deng Xiaoping; the owner is the son of the late Chen Yi, a member of the ruling inner circle that founded the communist government in 1949; lastly a board member is the son of former Premier Zhu Rongji
I found many companies that have sold to China firms with no sign of change in the product or service. Perhaps this might be a good thing. I am still do not feel comfortable sell out to a foreign company.
@Robert I type my posts on a Lenovo laptop. I’m not sayin’, I’m just sayin’…
please spare me the nonsense about businesses going to China. This deal will save THOUSANDS of jobs in local economies that desperately need it. The Marriott deal would have been just one more corporate consolidation – enriching the Marriott family while selling out the US economy. Just look at the airline consolidations – thousands of jobs lost – smaller airlines and hubs lost – and higher ticket prices for the public asa result of diminished competition. The Anbang deal allows Starwood to continue to grow and employee thousands of Americans while the public will continue to benefit from COMPETITION in the market. SPG preserved. Smaller owner/franchises benefiting. This is a good deal for the American economy. If you want to talk patriotism – ask yourself if a few rich families owning monopolies is good for America.
Nonsense!!!!
I do not think so…..
If Marriott is bought by the Chinese, it will belong to the Chinese, and the American will be working for the Chinese.
At the end of the day…( China is buying United States of America)
I do not live is US, I can see the picture and feel sorry for the Americans
Sorry, I made a typo mistake,
On the first line, I meant to say:
“If Starwood is bought by the Chinese”
So you would rather thousands of Americans lose their job because instead of working for stockholders the company is owned by a consortium? You’re not too smart.
@JoeStandup what are you talking about? Marriott’s acquisition means job cuts at headquarters. Anbang wouldn’t, and in either case hotels need the same staffing levels.
I think we’re saying the same thing
Marriott would seek to reduce all above property redundancies – regionally and at corporate. No need for multiple regional managers and HR and finance and infrastructure staffing and payroll and IT and finance and on and on and on.
Anbang may seek to trim costs but they are not a hotel company. They have ZERO experience or infrastructure for running an operation of this size. So – in all probability they will retain existing infrastrucure and management. They’re not buying this business to driver it into the ground.
You must be from China
No I’m with Starwood and this deal is saving my job. Don’t insult me. I have children and a mortgage to pay. The economy in Connecticut is very weak. Marriott intended to shut down our connecticut office and throw people out on the street. A consortium of companies is coming in to save the company and our jobs. You should really learn to think before insulting people.
Excuse me!!!!
Quote “you are not very smart” unquote
Who threw the insults first….