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Is the Marriott-Starwood deal in trouble or did it just hit a speed bump in China?
The Chinese Ministry of Commerce requested — and Marriott and Starwood agreed — to extend the regulatory review period to approve their proposed $12.2 billion merger to become the world’s largest hotel company.
The additional review period, known as phase three, could last for as long as 60 days. Originally, China had until August 9 as part of phase two, to pass judgment on the deal. Approval from China’s Ministry of Commerce is the only remaining merger clearance needed by both companies before they can close the deal.
Both companies’ shareholders approved the merger on April 8. Since the Marriott-Starwood merger was initially announced in November 2015, the companies have already received pre-merger clearance from other regulatory authorities in the U.S., EU, Canada, Chile, Colombia, India, Japan, Mexico, Pakistan, Saudi Arabia, South Africa, South Korea, Taiwan, and Turkey.
On Marriott’s second quarter earnings call on July 28, CEO Arne Sorenson said he was “optimistic that we will receive clearance from China and will complete the transaction in the coming weeks.”
That timetable is now apparently no longer in play.
However, he added, “Well, the Chinese government does have the ability to take deals into a Phase 3, and obviously we can’t speak for the Chinese government and have no regard for the fact that they’ve got to run their process in a way that meets with their needs. Having said that, we obviously are in communication with the staff over there, we’ve provided very, very significant amounts of information over the course for the last six or eight months something like that. And believe that the information that they need they have in hand and based on what we hear we are optimistic again that we should be done in the next few weeks.”
The fact that one of China’s largest insurance companies, Anbang Insurance Group, engaged in an all-out bidding war with Marriott in March to purchase Starwood does give some pause to the situation. Anbang’s consortium of investors was very close to outbidding Marriott at the end of March to buy Starwood for a reported $13.8 billion.
But at the last minute, Anbang walked away from the deal citing “various market considerations.” Shortly after, rumors swirled that Anbang was prompted to walk away from Starwood because of Chinese regulators and or Chinese government intervention.
Had Anbang not walked away from its latest bid, it’s likely it would have been able to beat out Marriott for Starwood. Bill Marriott, executive chairman of Marriott, said at the time, “We were done” if Anbang had made another bid for Starwood.
When asked if China had any political motivations for prolonging the antitrust and regulatory review process of the merger during Marriott’s earnings call, Sorenson said, “Obviously we have got folks in China that are helping us navigate through this and through them and through our teams we have been in touch with the Chinese authorities who are doing this process. I don’t think it’s political. I don’t think it is extraordinary. I think it is the wheels of government working and as you can tell from our comments we expect we at least hope that we will be done here real shortly and be able to close the transaction. And close it on the terms that we have explained all of you.”