Marriott/Starwood merger nears as Anbang pulls out
Marriott/Starwood merger nears as Anbang pulls out
01 APRIL 2016 10:18 AM

The proposed Marriott/Starwood merger moves a step closer to finalization after news that competitor Anbang Insurance Group has exited the bidding war.

GLOBAL REPORT—Just days after Anbang Insurance Group improved its offer for Starwood Hotels & Resorts Worldwide, the Chinese firm exited the race against Marriott International Thursday, leaving the runway clear for Marriott and Starwood to finalize their latest proposed agreement.

Starwood on Thursday officially announced that Anbang had walked away from its $14-billion deal ($82.75 per share in cash) for the hotel company. Anbang confirmed it had withdrawn its deal, which has included consortium partners such as United States private equity firm J.C. Flowers & Company and Primavera Capital Limited.

Marriott CEO Arne Sorenson said during a news conference Friday morning that he is excited the proposed deal with Starwood and Marriott will be moving forward, and he hopes it will close in mid-2016. Shareholders from both companies are scheduled to vote on the merger on 8 April.

Sorenson said when Anbang first came on the scene for Starwood, Marriott was “just starting to relax, which I guess is the first risk, right?”

“The November deal was a great deal for Marriott, and I would say it was a fair deal for Starwood. … When Anbang came in, it was to us breathtaking,” Sorenson said.

The proposed deal in November would have seen a total purchase price of $12.2 billion. The latest Marriott deal sits at $13.3 billion ($77.94 per share), which consists of $9.7 billion in Marriott stock and $3.6 billion in cash.

When Anbang made its first move to acquire Starwood, Sorenson said Marriott got to work immediately with its board. A new deal was then cobbled, which included a couple things that made it better, he said.

“We had become more confident with the synergies … and with more cash to the shareholders … and we had more strength in our share price,” Sorenson said. “And if you put all those things together, it was a good deal, although not as good to us as the one we had in November.”

Sorenson said no one at Marriott had been in conversation with Anbang. He added that for the Marriott/Starwood deal to close, European Union and Chinese approval is still needed.

Sorenson said things are moving well, and he remains excited about several aspects of the merger, most notably the synergies and benefits of a combined loyalty program.

He praised Starwood’s loyalty program but said there are notable destinations in which it does not have broad scale.

“We are confident of seeing improved margins for managed and franchised hotels on both platforms,” Sorenson said.

Sorenson said the two companies had not quantified synergies in relation to profit and loss as they wanted to take time to make sure they got the numbers right. He is confident that when they are produced they will put the combined company in the right place to play in a market of increasing competition.

Thomas Mangas, Starwood’s CEO, was equally excited, and said he also sees that numerous top-line synergies will derive from the deal. Having Starwood move more into the top-end of the sector is one benefit, but the story right now is “about occupancy, not rate. It’s about share of wallet,” he said.

Mangas said Starwood has worked with all parties in good faith, including what he referred to as “formidable Anbang,” which withdrew its offer “amicably” due to “market considerations.”

Sorenson said in answer to an analyst question that he would think it would be highly unlikely for shareholders to vote against the Marriott/Starwood deal on 8 April. Sorenson and the Marriott executive team also have been in regular consultation with the Marriott family, he said.

As of press time, Starwood’s stock price was down 4.1% to $79.36. Marriott’s stock price was down 5.4% to $67.36. 

Future plans
In terms of pipeline, Sorenson said he expects a great deal of growth, although he would not put a timeline on any brand growth across the two companies.

Specifically, renovating the Sheraton brand was mentioned during the news conference.

Mangas said he had not sat down with owners to talk about individual brands, although that would happen.

“We need to make a set of decisions that are fair to owners. … but the more we drive growth in those hotels, the more capital we can bring back in. That’s a two-part story,” Mangas said, adding that the process will take a couple years.

It’s a question of cash generation now, Sorenson said.

Sorenson said he is confident of 3% to 5% revenue-per-available-room growth for the combined company, leaning to the high end of that range. However, he noted that incidents such as the terrorist bombings in Brussels last week might affect performance.

Sorenson said he is more inclined now to keep all the Starwood brands but said the need to keep differentiation between brands would arise over the next several quarters when Marriott C-suite members meet its brand-development teams.

Anbang likely won’t leave hotels
Mangas also said he expects Anbang to remain involved in the hotel industry but had not discussed this with the Chinese company.

Russell Kett, chairman of business consultancy HVS London, said more consolidation activity in the industry is needed. Noting that Anbang’s involvement had increased the final price, he also joked that until the Marriott/Starwood deal is done perhaps some of the comments heard Friday should be taken with a pinch of salt.

“It is 1 April after all,” Kett said during a phone interview with Hotel News Now.

“Consolidation is good for the industry,” Kett added. “I’ve been banging on about this for months, as shareholders evidently are not happy with just organic growth but want quantum leaps.”

Creating synergies and more efficient operating engines will occupy the hotel sector’s thinking for the considerable future, according to Kett.

“Whether this comes from a hotel group or an outside investor does not matter; it will create synergies and growth for all,” Kett said.

Kett said speculation could go in any number of directions.

“(InterContinental Hotels Group) might be dinner, it might be dining, and maybe if Anbang is serious about securing a hotel asset, it might come in with a bid of them or someone else,” Kett said. “They sort of started this latest round of consolidation with the purchase of the Waldorf Astoria in New York, even though that was a single asset.”

Kett also pointed to companies such as Fosun’s ownership of Club Méditerranée and Meininger Hotel Group’s acquisition of a student travel company as indicative of Chinese money being interested in owning travel verticals.

“Vertical integration has not been ignored totally by the hotel industry, but it has not been adopted fully, and it is an operating model that can work,” Kett said. “We talk about owning the customer, and what better way to do this to help the customer on every step of their journey.”

Mangas sees more consolidation coming, too.

“We are still a very fragmented industry,” Mangas said.

1 Comment

  • Rob Carter April 2, 2016 11:14 AM Reply

    So sorry it came out this way. The Execs cited in this article, are of course excited and talking up the deal as they have big checks coming. As a person in the industry with many friends who work for Starwood, I was hoping for Anbang as they would have continued to need the team a Starwood to run the business. Now the Starwood folks will now be the first on the chopping block to create 'synergies' for the $450M of anual savings Arne promises.

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