Starwood Takeover: Anbang Raises Offer to Upset Marriott Bid

The consortium led by Anbang Insurance Group increased its offer for Starwood Hotels and Resorts today to $82.75 per share, bringing its bid for the hotel brand to $13.8 billion, a $200 million premium over the value of Marriott's offer.

After Starwood accepted a newly revised merger agreement from Marriott on Monday, March 21, for $13.6 billion, Anbang responded March 26, offering $81 per share in all cash, or approximately $13.5 billion. This new offer, Starwood's board noted, "is reasonably likely to lead to a 'Superior Proposal'" as defined in the company's latest merger agreement with Marriott International.

Because this proposal is likely superior, Starwood was then allowed to engage in discussions with Anbang over the weekend. After speaking with the consortium, Starwood received a revised proposal with the increased purchase price of $82.75 in cash per share. Both groups remain in discussions, and are working to finalize a binding proposal.

The new $82.75 per share offer is a bump of $4.75 per share from the consortium's previous offer from March 18. Combined with the timeshare spin-off, Anbang's proposal and the spin-off would have a value of $88.66 per share, for a deal worth approximately $14.8 billion.

Right now, Starwood's board hasn't changed its recommendation in support of the merger with Marriott, but it's clear that it just might very soon.

The Deals

Marriott's Latest Offer:

• $10 billion in stock based on: $79.53 per Starwood share and a Marriott share price of $73.16
• $3.6 billion in cash
• $14.2 billion with vacation rental business

Anbang's Latest Offer:

• $13.8 billion based on $82.75 per share in cash
• $14.8 billion with vacation rental business

What This Means for Starwood

While Starwood's board continues to engage in talks with the consortium to hash out the details of this new bid, it seems very likely that Starwood will eventually accept a new proposal with Anbang, and terminate its March 21 agreement with Marriott. Why? Because this is all cash, plain and simple.

What are those details that need to be figured out with Anbang? As we saw in Starwood's previous negotiations with Anbang, Starwood is likely going to ask Anbang to cover part or all of its new $468 million breakup fee. Also, given the fact that Anbang has previously offered as much as $86 per share for Starwood, it's likely it may be willing to increase that $82.75 per share number if need be.

Anbang also needs to assure Starwood that this is a fully financed, binding proposal, and to assure Starwood that it can confidently clear any regulatory hurdles posed both in China and in the U.S.

What This Means for Marriott

Marriott needs to assess whether or not it's worth it for the company to pursue yet another higher bid to buy Starwood. As some analysts have noted, there's increased doubt that Marriott will be able to, or will want to, increase its offer to buy Starwood.

In his note to investors released today, just before news of Anbang's new offer broke, David Loeb, managing director and senior real estate research analyst for Baird Equity Research, wrote: "We believe Marriott has limited levers to pull to increase its offer for Starwood should the consortium counter; an all-cash offer from the consortium becomes increasingly attractive as Marriott's stock falls. We believe a key risk to Marriott's merger assumptions (particularly its accretion/dilution analysis) is its ability to secure attractively priced debt financing, and the higher leverage implied by Marriott's revised proposal could limit management's desire to increase the cash component of its offer."

Marriott's March 21 agreement with Starwood is tied to its stock price. As it fluctuates, so too does the value of its offer. Marriott's stock, although up $2 at the moment, did fall last week following the announcement of its revised agreement with Starwood. If it continues to go down in price, so too will the value of its original estimated $13.6 billion merger agreement with Starwood, making Anbang's solid, all-cash offer a much better offer to Starwood shareholders.

Marriott issued a release this morning saying its reaffirms its commitment to forming a combined company with Starwood, and that its deal represents "greater long-term value" overall.

What Lies Ahead

We'll have to wait and see what the final details of this new Anbang consortium proposal will be. If Anbang's new takeover bid is eventually considered to be superior to Marriott's $13.6 billion offer, Starwood's board will call it that, and will recommend its shareholders to vote on a new agreement, effectively trumping the agreement with Marriott.

To be clear, that hasn't happened just yet. Right now, the board is still in favor of accepting Marriott's proposal. But as soon as Starwood and Anbang agree on a new deal that's fully financed and binding, it'll be up to Marriott to figure out its next move — and just how badly it wants Starwood in order to become the world's largest hotel company.

Chronology of Marriott-Starwood-Anbang:

• Monday, March 14: Starwood Gets Takeover Bid by Consortium Led by Chinese Firm Anbang
• Monday, March 14: New Starwood Takeover Bid: The Players Behind the $13 Billion Offer
• Tuesday, March 15: Starwood Rival Takeover Bid: What It Means for Brands, Executives and Shareholders
• Friday, March 18: Starwood Accepts Anbang’s Takeover Bid, Marriott Plans a Counter-Offer
• Friday, March 18: Will Marriott Be Able to Top Anbang’s Offer for Starwood?
• Monday, March 21: Starwood Accepts Marriott’s Counter-Offer Worth $13.6 Billion
• Monday, March 21: Marriott Investor Call: This Is What We Have In Store for Starwood
• Wednesday, March 23: This Is How Marriott Could Lose Starwood to Anbang's Investor Group
• Friday, March 25: What Marriott Is Telling Its Shareholders About Starwood the Second Time Around
• Friday, March 25: The Inside Story of Anbang's Long Pursuit to Acquire Starwood
• Monday, March 28: Starwood Executives' Golden Parachutes Got More Golden With New Marriott Offer