Analysts examine obstacles in Anbang’s Starwood bid
Analysts examine obstacles in Anbang’s Starwood bid
16 MARCH 2016 9:23 AM

Anbang Insurance Group’s cash offer for Starwood Hotels & Resorts Worldwide could be appealing to Starwood’s shareholders due to the price tag, but some barriers exist before that deal can become reality.

REPORT FROM THE U.S.—A consortium led by Anbang Insurance Group made a splash Monday with an aggressive bid to acquire Starwood Hotels & Resorts Worldwide, and analysts said the company’s cash offer could be appealing to Starwood shareholders who were already considering a stock-based deal with Marriott International that carried a lower price tag.

But analysts also said there could be some significant barriers for Beijing-based Anbang as company officials attempt to consummate their offer, and that could be complicated by recent reports of the company’s aggressive moves into the hotel space.

Wes Golladay, VP and equity research analyst at RBC Capital, said Anbang’s recent investments into the hotel sector should translate into people taking the company’s offer for Starwood seriously.

“I think they’re a credible buyer,” Golladay said. “They really came on to the scene with the Waldorf (Astoria) purchase.”

Anbang bought the iconic Waldorf Astoria in New York City from Hilton Worldwide Holdings in late 2014 for just shy of $2 billion.

Anbang’s offer to acquire all outstanding shares of Starwood’s common stock for $76 a share in cash could be a hard offer for shareholders to reject, Golladay said. Marriott officials granted Starwood a waiver to engage in discussions with Anbang that lasts through 11:59 p.m. EDT Thursday.

“From a Starwood shareholder perspective, you want to maximize the offer from day one,” Golladay said. “You can always take that cash and deploy it into Marriott the next day. That’s the way we’ve got to look at it.”

Anbang’s offer for Starwood also comes as various media outlets—including Bloomberg, CNBC and The Wall Street Journal, citing anonymous sources—have reported Anbang has reached a deal to buy Strategic Hotels & Resorts from Blackstone Group for $6.5 billion.

Hotel News Now has been unable to reach officials with those companies for comment on the possible deal, which they’ve yet to publicly comment on.

Owning and branding
David Loeb, senior hotel research analyst and managing director at Robert W. Baird & Company, said Anbang’s move into hotel ownership—particularly the Strategic deal if it does indeed materialize—complicates the prospect of acquiring Starwood.

While Loeb said it’s still possible Anbang could structure its potential ownership of Strategic and Starwood in various ways, it still harkens back to issues Patriot American Hospitality faced in the late 1990s when that company acquired Interstate Hotels Company.

As the owner of Starwood, Anbang would own several hotel brands, but as the owner of Strategic, Anbang would also own several hotels that carry flags owned by companies like Marriott, InterContinental Hotels Group and FRHI.

“If all of that happens, and Anbang is considered the owner of the brands, which is far from certain because of the consortium, there may be objections raised by Marriott (and other branding companies). A lot of water needs to get under the bridge before this can happen,” Loeb said.

Loeb said that, ultimately, Patriot American was forced to spin off Interstate’s third-party management platform after a lawsuit with Marriott. He described that as a “similar, but not exactly parallel, situation” and said the Anbang deal would be “more complicated than meets the eye.”

Possible regulatory hurdles
Anbang’s offer for Starwood also faces greater regulatory issues than a potential Marriott/Starwood merger.

C. Patrick Scholes, managing director of gaming and lodging and leisure equity research at SunTrust Robinson Humphrey, said that Anbang must get approval from the Chinese government to get its capital overseas—something that has become increasingly difficult for Chinese companies—and also would be subject to regulatory scrutiny in the U.S.

“I imagine some government regulatory agency would have to approve this,” Scholes said.

Marriott deal already down the road
One thing that makes a deal with Marriott more appealing for Starwood shareholders, and conversely makes the Anbang offer less appealing, is the fact that Starwood and Marriott have already spent months laying the groundwork for a merger, sources said.

Each of the analysts interviewed acknowledged that Marriott’s possible merger with Starwood provides the latter with synergies that the Anbang deal would not, and Starwood shareholders are already scheduled to vote on that merger on 28 March.

Loeb said he could see Starwood and Marriott possibly extending their waiver period but he doesn’t believe it’s likely the companies end up delaying their shareholders meetings.

When asked about the most likely outcome, sources said it seems like Marriott still has the inside track for the deal, especially if Marriott executives are willing to increase their offer a bit. But that’s far from a sure thing.

“It’ll be interesting,” Golladay said. “And there’s really no clear consensus (on what happens) out there.”

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