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Starwood Hotels & Resorts says it will accept an offer led by Anbang Insurance Group to acquire the company, unsettling a deal the brand made with Marriott International in November 2015.
In a statement, Starwood said that the company’s board of directors called the Anbang offer a “Superior Proposal.” Starwood will postpone its shareholder vote on the Marriott offer, originally scheduled for March 28. The Anbang group increased its bid from $76 to $78 per share prior to Starwood’s decision to choose this offer over Marriott’s.
According to the Starwood statement, “Marriott has the right until 11:59 p.m. ET on March 28, 2016 to negotiate revisions to the existing merger agreement.” If Starwood does not accept a new offer from Marriott, it would pay the company a $400 million break up fee.
Marriott issued a statement reaffirming its position that it presents the better offer for Starwood.
Marriott continues to believe that a combination of Marriott and Starwood is the best course for both companies and offers the best value to Starwood shareholders. Marriott is in the process of reviewing the Anbang consortium’s proposal and is carefully considering its alternatives. The company is considering postponing its Special Meeting of Stockholders which is currently scheduled for March 28, 2016. Marriott has no further public comment at this time.
Both Marriott and Starwood’s stock surged this morning following Starwood’s announcement.
The Back Story
The rival takeover bid proposed by a consortium led by Beijing-based Anbang Insurance Group, New York’s J.C. Flowers & Co., and Beijing-based Primavera Capital Group was unexpected, last-minute, and generous. The roughly $13.2-billion, all-cash bid was a 14- to 22-percent premium on what Marriott International was offering to Starwood — $12.2 billion, mostly in stock and some cash.
In addition to being all-cash and initially valuing each Starwood share at $76, compared to Marriott’s estimated $62 to $67 per share, the Anbang deal would allow Starwood to stave off job cuts and retain its executive leadership and business strategy, as well as keep its suite of brands and popular Starwood Preferred Guest loyalty program.
On the other hand, choosing Anbang over Marriott means Starwood would give up the opportunity to be part of the world’s largest hotel company, and it would lose the scale and scope of leveraging that bargaining power against online travel agencies and competing hospitality companies.
It was clear, since news of the bid broke on Monday, March 14, that Anbang and company were very serious about their offer. The consortium hired PJT Partners, a New York-based firm that specializes in takeovers, as its financial advisor, and it also hired Georgeson, a proxy solicitation firm, to communicate directly with Starwood’s major shareholders about the proposed bid.
Reuters recently reported that Anbang has had its eye on Starwood since last year. According to a confidential source familiar with the matter, Anbang tried to acquire Starwood last year but could not get the financing needed at the time to outbid Marriott.
Buying up iconic U.S. hotel properties is not new to Anbang. The company purchased the iconic Waldorf-Astoria in New York from Hilton Worldwide for $1.95 billion—the highest price ever paid for a U.S. hotel—in October 2014. Over last weekend, it was reported that Anbang was close to closing a deal with Blackstone to purchase 16 U.S. luxury hotels for an estimated $6.5 billion.
Going after established and iconic U.S. hotel properties and hospitality brands makes solid financial sense for a firm like Anbang. Investing in these trophy properties is a stable and fiscally savvy move for Anbang, especially as worries continue to build around the depreciation of the Chinese yuan.
Going after Starwood, in particular, is especially strategic for Anbang. For many years, under the leadership of former CEO Frits van Paasschen, Starwood made the Greater China region one its biggest areas of expansion, opening a new hotel in China every two weeks in 2011. Twelve percent of Starwood’s hotels are located in China, and the company’s legacy brands, including Sheraton and Westin, carry plenty of cache among the Chinese. Starwood’s hotel portfolio is primarily international in scope, with 60 percent of its properties located outside the U.S. It’s safe to assume Anbang is betting that outbound Chinese travelers will heed that brand recognition as they begin to travel more and more internationally.
It’s still not clear exactly how Anbang and its fellow consortium members are funding this current offer, but it is binding and fully financed. If Starwood does eventually accept Anbang’s proposal, the deal would still have to clear regulatory hurdles, including gaining approval from the Committee on Foreign Investment in the United States, which oversees foreign acquisitions that could potentially pose threats to national security.
A source close to the consortium says that it is confident its proposal will pass scrutiny regarding any regulatory requirements, and it will attempt to close the deal in a timely fashion.