On Friday Starwood’s customers and shareholders were excited by a Chinese group led by insurer Anbang making a substantially higher offer for the hotel chain than the pending Marriott Marriott acquisition deal.
Marriott Seattle Airport Atrium
Starwood informed Marriott that it intended to terminate their deal and enter into an agreement with this ‘superior proposal’. Starwood put off its shareholder vote. Under the agreement though Marriott had 10 days to counter. As I wrote on Friday morning,
The Anbang deal isn’t done yet. Marriott has the opportunity to counter. And the shareholder vote has been put off and not yet rescheduled. But this is a huge development — for Starwood’s investors, employees, and customers. (Investors, of course, are the group that would still benefit even if Marriott successfully countered.)
Marriott acted quickly, submitting a new bid for Starwood and Starwood’s Board has accepted it. It’s a mix of cash and stock, the value highly dependent on Marriott’s recently-volatile share price.
- Anbang’s offer, which Starwood’s board recommended declared superior on Friday, was $78 a share in cash.
- Marriott’s new offer is 0.8 Marriott shares and $21 in cash for each Starwood share. Marriott closed at 73.16 a share on Friday, valuing the deal at $79.53 a share.
The previous Friday Marriott’s shares had closed at 68.89, and would have valued this new deal at 76.11. The valuation is highly contingent on the price of Marriott’s stock.
And indeed Marriott shares were up on Friday when it looked like they weren’t going to acquire Starwood.
As of this writing, Marriott’s shares are back down on pre-market trading with this news.
Nonetheless this is a significantly-increased offer by Marriott. At current share prices, the earlier offer of 0.92 Marriott shares and $2 cash per Starwood share was worth $69.31. The new offer is 15% higher.
With about 169 million shares of Starwood stock outstanding, the offer goes from $11.7 billion to $13.4 billion.
I am genuinely surprised by the $13.4 billion offer. On Friday I wrote that while I expected Marriott to counter, that at this price they should walk away.
- Aided by strong investment counsel, Starwood wasn’t able to find a higher bidder among hotel chains despite shopping the company aggressively.
- Marriott, then, deemed the high bidder may have been overpaying to begin with (the usual outcome, dubbed the ‘winners curse’).
- Anbang’s offer was likely overpaying for Starwood just as they paid the most-ever for the Waldorf-Astoria in New York and gave Blackstone hundreds of millions in profits flipping hotel properties over a period of months with the Strategic Hotels deal.
- Marriott says the deal will not improve their earning in the first two years.
It’s easy to get institutionally committed to a deal, and wrapped up in winning. By spending well over an extra billion dollars, it’s far less likely that the deal’s synergies will overcome its cost.
SkyCity Marriott, Hong Kong Airport
It will be interesting to see how Marriott’s stock performs, and the ultimate price Starwood’s shareholders thus receive for their shares — whether Starwood’s board is indeed correct that there’s greater value in the Marriott offer. Regardless, Starwood shareholders are much better off than they were going to be under the original Marriott deal.
Nonetheless, now Starwood customers are back to wondering what their Marriott future looks like.