Marriott Won’t Raise Its Offer for Starwood, Wants Shareholders to Sell to Them Anyway

This morning word came out that Chinese consortium Anbang had raised its bid for Starwood to $82.75 in cash.

Marriott had offered 0.8 Marriott shares and $21 in cash last Monday, worth a little over $79 at the time, to outbid Anbang’s previous $78 offer. Marriott’s shares had fallen since then.

Instead of countering with a higher offer — continuing the potentially irrational bidding war — Marriott has issued a statement saying that Starwood’s shareholders to vote to sell for Marriott’s cash and stock offer anyway.

  • Suggesting there could be questions about whether Anbang can finance the transaction
  • And that there’s some regulatory risk, whereas Marriott – Starwood has already cleared significant regulatory hurdles

Starwood stockholders should give serious consideration to the question of whether the Anbang-led consortium will be able to close the proposed transaction, with a particular focus on the certainty of the consortium’s financing and the timing of any required regulatory approvals.

We know from previous filings that Anbang had made an offer for Starwood last year without guaranteed financing. And we also learned that their $78 offer came with a commitment from a New York branch of a Chinese bank, satisfying Starwood’s board of their ability to finance the deal.

Marriott hasn’t formally ruled out countering but at this point it seems unlikely.

US regulators could have a concern about the proximity of certain hotels to sensitive areas, or the management of certain properties. However in most cases that seems to confuse the ownership of Starwood the chain versus ownership of individual hotels. At worst the US government might insist on divestiture of certain real estate.

There’s little competition concern from the combination, since Anbang isn’t itself a major hotel chain and its presence in the US hotel industry is limited to owning hotel properties largely managed by Starwood competitors (for instance the Waldorf Astoria, and also the expected acquisition of Strategic Hotels and Resorts).

Chinese regulators could take issue with the purchase. There’s been some rumblings about an insurance regulator expressing concern over the percentage of Anbang’s assets which would be held abroad. Although it’s not at all clear Anbang would run afoul of rules, or that it would even matter in the case of this company whose Chairman is married to a granddaughter of Deng Xiaoping.

My own prediction is that Starwood’s board will have to recommend the higher offer if they can validate financing and satisfy themselves regarding regulatory risk. I expect that since we know financing was an issue in the past, we can expect that those issues have been largely resolved or else Starwood’s board wouldn’t have recommended the $78 offer.

Regardless, Starwood shareholders should not take investment advice from Marriott press releases (or travel blogs, but I’m not offering investment advice – hah).

May we live in interesting times, indeed.

(HT: One Mile at a Time)

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Marriott can counter this offer if they want to, but they are now seeing this deal for what it probably was from the beginning, a loser, and are ready to walk away if all Starwood sees is the green and not the golden future that the two companies’ synergy could bring about. There is also the sense that Marriott believes that they are the devil that Starwood knows and should trust for the long term, whereas Anbang….well, it’s complicated.

  2. This is where it makes sense to fold your hand and take the $450 million. It really makes sense to take the $450 million.

  3. @DCS – Starwood doesn’t care about the “golden future that the two companies’ synergy could bring about.” They’ve got a cash offer valued at more than a cash + stock offer.

    Nothing complicated about that.

  4. “I am just happy about the idea of leaving SPG the way it is.”

    Will it be? Whoever acquires Starwood would have spent too much money to just leave an underperforming company be “the way it is.”

  5. Once again, DCS shows just how clueless he is about the business world.

    Stick to your lab and your crappy HH program.

  6. I am pretty sure everyone who works for Starwood is rooting against Marriott takeover as that means lots of people losing jobs. That’s what those magical “synergies” are — job cuts. And most of those jobs would be lost of Starwood side.

    P.S. Possible exception may be top management whose golden parachutes are quite nice under Marriott’s offer. Presumably, Anbang could offer them some sort of retention bonus to keep them on board.

  7. @Gary, Now what does Marriott do if they don’t up the offer for Starwood? Perhaps a Hyatt takeover, or does the Pritzker stock make that impossible without the family’s consent?

  8. @DCS
    “Whoever acquires Starwood would have spent too much money to just leave an underperforming company be “the way it is.”

    Starwood’s losing money? huh.

    Why would an insurance company suddenly want to buy Starwood, only to change everything about it? Marriott would have “synergies” to concern itself with. If Anbang primarily wants to diversify, they would have little interest in rocking the boat.

  9. Smart move on Marriott’s position, they most likely feel that their offer is a good one based on all the multiples, etc.

    One only needs to look back at all the cash the Japanese were throwing around in the 60’s early 70’s and how much they lost. I would also caution that cash positions of China mainland based companies is becoming more and more suspect, and this deal may call for lot’s of cash at times.

    As they say “let them eat cake”

  10. Its quite obvious this is a foreign capital flight play. Which means they definitely really don’t care how much profit is being made.

    Probably will try and “mix” foreign & domestic earned cash.

    Good news for SPG members, I highly doubt they will destroy the program.

  11. Gary,

    Please see if you can possibly do an article now on Accor’s moves and whether Marriott might now look into Carlson Rezidor. Carlson is the same size as Starwood in terms of hotels, is more like Marriott in “mix” of hotels, has a footprint that has less overlap and gives them the scale to negotiate better with OTAs, not to mention likely much cheaper than Starwood.

  12. @john The Pritzker shares make a hostile takeover highly improbable. Which doesn’t mean a deal is impossible at the right price to entice them. They tried to buy Starwood. They tried to buy Kimpton. I think they’ve wanted to be acquirers, but they could also be the focus of an acquisition as well of course.

  13. @Bill — Reductio ad absurdum:
    In your experience, do many companies like Starwood put themselves on the auction block if all is hunky-dory? Starwood’s growth has been anemic at a time when their competitors’, Marriott included, have been enjoying tremendous growth: “Competition has grown, too, as more American hotel chains increasingly look to China for international growth. Marriott currently has 88 hotels in China, with another 150 in the works. This month, McLean, Va.-based Hilton Worldwide said it would open 206 new hotels in the country, effectively QUADRUPLING its presence.” [1]

    [1] “The latest destination for China’s billions: U.S. hotels”: http://www.washingtonpost.com/business/capitalbusiness/the-latest-destination-for-chinas-billions-us-hotels/2016/03/28/10afbd76-ec47-11e5-b0fd-073d5930a7b7_story.html

  14. I think Marriott should just walk away from this deal, take the $450 million, and use that to go after another chain. I’ve heard people say the Pritzker family won’t sell. Everyone has a price and if it was the right one, I’m sure they’d look at it. Look at the WSJ and American Airlines. Both said they would never sell. Look what happened.

  15. @Tony of course we can assume Pritzkers would sell ‘at some price’ but I’d push back on the American Airlines bit, six months before the US Airways deal was announced Tom Horton started talking about how the combination was actually his idea…

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