Anbang-Led Group Faces Challenge to Wrest Starwood From Marriottby
Starwood accepted new Marriott offer valued at $13.3 billion
Breakup fee is increased by $50 million to $450 million
The onus is on the Beijing-based insurer and its partners to increase their $13.2 billion cash offer after Starwood said it would accept a revised cash-and-stock bid by Marriott now valued at about $13.3 billion. Starwood shares climbed 4.5 percent Monday as investors weighed the possibility of a competing proposal.
“I have to believe there is at least one more act to this play,” said Frank Aquila, a partner in mergers and acquisitions at law firm Sullivan & Cromwell LLP in New York, who isn’t involved with the deal. “Anbang seems to be very aggressive in its recent bids and if it’s worth this much to Marriott, Anbang may well come back with a little bit more.”
The takeover battle for Starwood pits Anbang Chairman Wu Xiaohui, 49, against Marriott Chief Executive Officer Arne Sorenson, 57. Wu has a history of swooping in at the last minute to forge deals. A successful purchase by Anbang’s group would mark the biggest purchase of a U.S. company by a Chinese buyer.
Chinese investors have been accelerating acquisitions of hotels and other types of real estate in an effort to acquire hard assets outside of their home country, where the economy is slowing and currency devaluations are a concern. Lodging also is an attractive industry for investors seeking to capture increased demand from Chinese travelers abroad.
Marriott, for its part, wants Starwood’s pool of loyal guests and its well-known brands, which include W, St. Regis, Westin and Sheraton.
Starwood said Monday that it amended its merger agreement with Marriott, first reached in November, to reflect a revised price of 0.80 Marriott share plus $21 a share in cash. The new offer is valued at $78.84 a share based on Marriott’s closing price Monday. Anbang’s latest bid, disclosed Friday, was $78 a share.
Starwood shareholders also are poised to receive shares of Interval Leisure Group Inc. as part of the pending spinoff of the company’s timeshare business. The combined total for Marriott’s deal is $84.71 a share, based on closing trading prices. Starwood shares closed at $84.19 Monday, while Marriott fell 1.2 percent to $72.30.
Marriott would get $450 million if its deal were terminated, up from $400 million previously.
“I think there is room for the Anbang consortium to come in at a higher price, even with the $50 million increase in the breakup fee,” said Lukas Hartwich, senior lodging analyst at Green Street Advisors LLC. “It doesn’t appear the market expects a much higher offer, which is interesting given Anbang’s aggressive track record.”
Anbang representatives declined to comment. The company, which is working with J.C. Flowers & Co. and Primavera Capital, last year purchased Manhattan’s landmark Waldorf Astoria for $1.95 billion. It’s in a deal to buy luxury-property owner Strategic Hotels & Resorts Inc. for about $6.5 billion, just three months after Blackstone Group LP completed its purchase of the company, according to people with knowledge of the matter.
Marriott increased the cash portion of its offer to $21 a share from $2, reducing the share portion. The company said its increased bid would have a neutral impact on adjusted earnings per share in 2017 and 2018.
Marriott expects annual cost savings of about $250 million with the merger, up from the $200 million it estimated when it sealed the merger agreement in November, Sorenson said Monday.
David Loeb, an analyst at Robert W. Baird & Co., said he expects Anbang to raise its bid, while Marriott would walk away with its $450 million termination fee should Starwood go with the other suitor.
“My assumption is that this is it for Marriott,” said Loeb. “I think this is their best shot, and I don’t think $450 million is a bad outcome for them. Just getting $50 million more and protection around financing expenses made this round worthwhile.”