Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

A Chinese buyer just made two more bold moves for hotel properties, and one of them is spurring a last minute face-off against Bethesda, Maryland-based Marriott International. But the deal is still Marriott's to lose.

A consortium led by Anbang Insurance Group of Beijing has made a $76-a-share all-cash bid for Starwood Hotels, seeking to upset the company's merger with Marriott that was agreed upon back in November. Shareholders were scheduled to vote on -- and likely approve -- the Marriott transaction in just two weeks. 

Marriott's offer, which is mostly stock, is currently worth about 2 percent less than Anbang's $12.8 billion proposal.  From here, Starwood's board will probably have to deem Anbang's bid superior, forcing Marriott to raise or concede. And if Starwood's smart, it will try to turn this into a bidding war.

Raising The Stakes
Anbang's bid for Starwood shakes up what had been a relatively uneventful merger situation.
Source: Bloomberg
Both offer values include proceeds from the pending merger transaction involving a Starwood subsidiary.

This is a one-two punch from Anbang, a relatively unknown name in the U.S. that has come in and effectively revalued American hotel assets. In addition to launching the counteroffer for Starwood, Anbang agreed over the weekend to acquire Strategic Hotels from Blackstone Group for $6.5 billion -- a deal that further proves the Chinese suitor isn't all that price-sensitive. Blackstone itself had just purchased Strategic Hotels three months ago for $6 billion, and already Anbang was willing to take it off its hands for a premium. The insurer also bought New York's Waldorf Astoria Hotel last year for $1.95 billion in what was the largest U.S. real estate deal by a Chinese buyer. 

While the Chinese are often assumed to have some of the deepest pockets in a room -- and Anbang's actions would certainly allude to that -- it's not clear how far it could actually push a possible bidding war with Marriott. "Is Anbang good for the money? They probably are, but there's no guarantee," Patrick Scholes, a SunTrust analyst, said on CNBC Monday.

Coming to America
Chinese investors have already spent a record amount of money on U.S. acquisitions in 2016 as their country's economic growth begins to wane.
Source: Bloomberg

Anbang, a private company, doesn't disclose its financials. But what we do know is that A) there are far more synergies between Marriott and Starwood, B) Marriott can afford to raise the cash portion of its offer , and C) Anbang-Starwood would have to pay Marriott a $400 million breakup fee. 

Thus far, Anbang's deals have gotten by without the U.S. government's involvement, but a Starwood acquisition to add to its other U.S. assets may get the attention of CFIUS (the U.S. agency that investigates sales to foreign acquirers). 

Also, let's not forget why Marriott pursued Starwood in the first place: It needs the scale. Airbnb is emerging as a real competitor for the hotel giants, which also have to elbow their way through online travel agents. Buying Starwood adds brands such as the Westin, W, Sheraton and St. Regis to Marriott's portfolio. The companies estimate at least $200 million of annual cost savings in the second full year after the deal closes. 

Surely, an Anbang transaction may be more appealing to Starwood's management, because Anbang may need them to stay running the business. But Starwood has to do what's best for shareholders. So if it can use the Anbang proposal to push for a little more cash from Marriott, a deal in which investors can participate in the upside from a Marriott-Starwood combination may be the better option. 

  1. That's not including Starwood's net debt and the additional payment from the Reverse Morris Trust transaction between its Vistana subsidiary and Interval Leisure Group. Starwood said that deal is worth $5.50 a share, based on Interval Leisure Group's volume-weighted average price for the 20 days through March 11.

  2. Neither Moody's nor Standard & Poor's lowered their ratings for Marriott when it announced the Starwood merger. Both rank it two rungs above junk, which means the company has room before having to worry about being cut to that level.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net