A group led by China’s Anbang Insurance Group made an unsolicited offer to acquire Starwood Hotels & Resorts Worldwide for $76 per share in cash, a move analysts say might spark a bidding war with Marriott International.
REPORT FROM THE U.S.—This will be a busy week for Starwood Hotels & Resorts Worldwide.
Marriott International’s planned acquisition of Starwood is not yet a done deal, and today’s news that a consortium of potential investors made an unsolicited bid for Starwood exemplifies that the process is still in the works.
On 10 March, Starwood received an unsolicited indication of interest from a consortium of potential investors led by China’s Anbang Insurance Group. In a news release issued today, Starwood said the proposal is to acquire all outstanding shares of Starwood’s common stock for $76 per share in cash.
In November 2015, Starwood entered into a merger agreement with Marriott under which Marriott would acquire the company for $12.2 billion, including $11.9 billion in Marriott International stock. This merger transaction has a current value of $72.08 per Starwood share.
With Marriott’s offer valued at $72.08 per share and the new group’s offer valued at $76 per share, a bidding war may ensue, one analyst said.
“I suspect this sort of opened the doors for a bidding war here,” C. Patrick Scholes, managing director of gaming and lodging and leisure equity research at SunTrust Robinson Humphrey told HNN. “I wouldn’t be surprised if Anbang came back with a higher offer, since I’m not sure this initial level would be enough to sway people’s opinions.”
Scholes said Anbang could increase its offer to $86 or even $90 per share, which could make it much more tempting for Starwood shareholders. But Scholes said the deal with Marriott still offers value beyond the price tag.
In written comments to investors, analysts for Baird Equity Research, including senior research analyst David Loeb, said the Anbang group’s offer could translate to higher transaction prices, but not necessarily a higher offer from Marriott.
“Anbang appears to have a big appetite for hotels, particularly focused on real estate,” the analysts wrote. “And an implied 13.5X 2016E EBITDA price should boost valuations across the hotel space for brands and owners.”
Starwood’s owned assets are more of a long-term draw for the Anbang group than Marriott, but the Baird analysts warn that represents a higher risk than Marriott’s asset-light approach.
“Starwood’s extensive real estate assets magnify the cyclicality of the stock because hotel ownership necessarily brings with it operating leverage, as well as substantial debt financing,” the analysts wrote.
An Anbang deal also wouldn’t realize the kind of economies of scale that Marriott’s would, and would lack the supercharged distribution power. Analysts say Starwood would still face a tough competitive landscape without the combined power of Marriott.
“Starwood competes directly against several other large, sophisticated brands and similar strategies,” they wrote. “Hilton, Hyatt, InterContinental and Marriott compete globally against each other and Starwood for customer loyalty and for independent hotel developers to select their brands. Starwood’s competitors are well-capitalized and well-managed.”
At press time, Marriott International shares were up 4.5% year to date, and Starwood Hotels & Resorts Worldwide shares were up 7.8%, according to the Baird/STR Hotel Stock Index.
HNN reached out to Marriott and Starwood for further comment, and will update the story as news unfolds.
Time is of the essence for Starwood to consider this latest offer. According to a news release, Marriott granted Starwood a waiver to engage in discussions with the Anbang-led consortium of investors and produce diligence information, but the waiver expires at 11:59 p.m. EST on 17 March.
Starwood’s board of directors has not changed its recommendation in support of the merger with Marriott, and according to a news release, the board is considering the course of action that best benefits Starwood and its stockholders. The release said the Anbang-led consortium has not completed diligence, and “there can be no assurance that discussions will result in a binding proposal from the consortium.”
Starwood and Marriott currently are undergoing the regulatory approvals process for their proposed merger. Both companies have satisfied closing conditions in the merger agreement that relate to antitrust and competition authorities in the U.S. Marriott has scheduled its special meeting of stockholders for 28 March for approval.
Under the terms of the Marriott acquisition, if Starwood decided to terminate its agreement with Marriott to enter into another deal, it would be obligated to pay Marriott a $400 million termination fee in cash.
The road to a deal
The path to Starwood’s acquisition has been a complex one. Several companies and groups of companies made serious bids for Starwood that had financial terms attached, according to Marriott’s Form S-4 December 2015 filing with the Securities Exchange Commission.
While it’s unknown whether Anbang was one of those companies previously expressing interest, other Chinese companies were kicking the tires on Starwood last fall. Citing unnamed sources, The Wall Street Journal reported at the time that Shanghai Jin Jiang International Hotels, HNA Group and sovereign wealth fund China Investment Corp. had presented proposals to the Chinese government to acquire Starwood.
Anbang’s history with hotels
In October 2014, Hilton Worldwide Holdings agreed to sell the Waldorf Astoria New York for $1.95 billion to Anbang, and the deal received approval from U.S. regulators in February 2015. This was Anbang’s first major U.S. real estate acquisition.
At the time, the company indicated it would continue to invest in high-quality real estate assets in North America, a sentiment Anbang managing director Philip Yee echoed earlier this year at the Americas Lodging Investment Summit.
“We’re looking at the U.S. for strategic purpose, not just as a safe haven,” Yee said in January. “And when you look at the valuations, it can be very high in some places while we believe New York and San Francisco are fairly reasonable, and we think it’ll be very durable in the long run. We’re in it for the long term—so for us that means primary markets in the best asset classes.”
In other news, today The Wall Street Journal reported that Blackstone Group may be near a deal to sell Strategic Hotels & Resorts to Anbang for an undisclosed price.
News Editor Sean McCracken contributed to this story.