Starwood bid: Will Marriott check out?

Analysts wonder if hotel chain has room to raise bid after Anbang makes higher offer

The 89-year-old hotel chain Marriott is aiming to expand to gain economies of scale and greater bargaining power with online travel agents, and attract younger travellers to compete with upstarts like Airbnb.
The 89-year-old hotel chain Marriott is aiming to expand to gain economies of scale and greater bargaining power with online travel agents, and attract younger travellers to compete with upstarts like Airbnb. PHOTO: AGENCE FRANCE-PRESSE

NEW YORK • Marriott International is facing the prospect that four months of work towards completing a purchase of Starwood Hotels & Resorts Worldwide is about to come undone.

Starwood on Monday received a takeover offer of US$82.75 a share, or US$14 billion (S$19 billion), from a group led by China's Anbang Insurance Group. That is higher than Marriott's last bid, raising the stakes for the lodging company to counter a second time to save a merger that would create the world's biggest hotel operator.

Marriott has been working on the acquisition since last November, when Starwood first agreed to be bought by its larger rival in a cash-and-stock deal.

"The time and energy they've invested is not something they're going to happily walk away from," said Mr Tom Baker, corporate managing director at commercial real estate services firm Savills Studley. "It's just a question of can they justify paying more than what they've already bid, and at what point does it stop?"

Marriott's options include letting Anbang buy the company it covets; paying a price so high that the merger may be too financially risky; or finding ways to make a more-expensive acquisition pencil out, possibly through property sales.

  • Anbang, a 'big player at home'

  • Anbang has exploded onto the international scene in recent years by spending billions to acquire insurers and hotels.

    But the Chinese insurance group is also a big player at home with stakes in banks, developers, medicine makers and wind-turbine makers.

    Yet, for all its ambition, it is opaque to many inside and outside China, its ownership a mash of corporate shareholders with multiple layers of holding companies all over the country, The Wall Street Journal said.

    Anbang was founded to sell car insurance in 2004 in Ningbo, south of Shanghai. By 2010, it had won licences to sell insurance in property, life and health. It has US$254 billion (S$348 billion) in assets, said the report. Its investors include 39 Chinese firms from sectors like cars and real estate. It has spent billions to build an empire under chairman Wu Xiaohui, setting sights on battered European financial firms and hotel properties like New York's Waldorf Astoria.

    The Beijing-based firm often gets financial backing from China Construction Bank, including for Starwood, for which it has bid US$$82.75 a share in cash. Political science professor Victor Shih at the University of California, San Diego told WSJ: "The fact that the company has been allowed to flourish both domestically and outside of China indicates pretty consistent and strong support from the Chinese government at a very high level."

The 89-year-old company, founded by the father of its executive chairman, has been acquiring hotel companies to expand globally, though none of its targets have been as big as Starwood.

"I don't think there is a better way to make this work, unless Marriott arranged the concurrent sale of the real estate for a very high price," said Mr David Loeb, an analyst at Robert W. Baird. "That is possible but not easy."

Starwood owns real estate valued at about US$4 billion, including the St Regis in New York.

Shares of Starwood rose 2 per cent to US$83.75 at the close of trading on Monday. Starwood's share price includes about US$5.95 a share for the pending spinoff of its timeshare business. Marriott climbed 3.9 per cent to US$71.34.

Starwood said it is in negotiations with the Anbang group after receiving a non-binding offer of US$82.75 a share in cash. Marriott's second stock-and-cash proposal is valued at about US$78 a share, or about US$13.2 billion, based on Monday's closing price.

Marriott on Monday reaffirmed its commitment to buying Starwood, which it wants for its loyal pool of guests and brands including Sheraton, Westin and W, saying that the "previously announced amended merger agreement is the best course for both companies".

The combination of Marriott and Starwood would create a hotel behemoth with about 5,700 properties and 1.1 million rooms.

Marriott chief executive Arne Sorenson is aiming to make the hotel chain bigger, to gain economies of scale and greater bargaining power with online travel agents, and attract younger travellers to compete with upstarts like Airbnb.

Marriott has room to raise its offer for Starwood yet again, said Mr Christopher Agnew, an analyst at MKM Partners, in a research report on Monday. "We believe Marriott could bump its cash offer by a couple of dollars to regain its position as having a superior" bid.

But some analysts, including Mr Lukas Hartwich of Green Street Advisors, see Marriott as having limited scope to increase its offer without turning a potential win into a Pyrrhic victory.

"Based on the synergies Marriott has outlined, it doesn't seem likely they could match the Anbang consortium's price without giving away most/all of the value they expect to create by combining the two companies," Mr Hartwich said.

If Anbang's new offer becomes binding, the likely end result will be "Marriott walking away from this process and simply collecting its US$450 million break-up fee", said analyst Joseph Greff at JPMorgan Chase.


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A version of this article appeared in the print edition of The Straits Times on March 30, 2016, with the headline Starwood bid: Will Marriott check out?. Subscribe