Could New Bid Threaten The Marriott & Starwood Merger?

We’ve seen a huge amount of consolidation in the airline industry over the past decade, and it looks like that has slowly been spreading to the hotel industry.

Since early 2015 Starwood has been looking for a buyer, which led to a lot of speculation. There were all kinds of rumors as to who could take over Starwood, ranging from Wyndham to IHG to Hyatt to Chinese investors.

Last November a lot of us were caught off guard when we learned that Marriott would be taking over Starwood in a $12.2 billion deal. I can definitely see the synergies between the two brands, though as a Starwood loyalist I’m not at all happy about the takeover. I love Starwood precisely because they’re a smaller group, and therefore have a more rewarding and personalized loyalty program.

Marriott-Starwood-Merger

People are loyal to Marriott, on the other hand, because they have hotels everywhere. You don’t have to go out of your way to stay at Marriotts, and that’s probably why their loyalty program isn’t as rewarding.

While the merger between Marriott and Starwood is expected to close around the middle of this year, it looks like it might not occur quite as uncontested as we had expected.

A Chinese investor group has submitted an offer to acquire all the outstanding shares of common stock of Starwood for $76 per share. Per a Starwood press release:

Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”) today announced that on March 10, 2016 it received a non-binding proposal from a consortium of companies (the “Consortium”) to acquire all of the outstanding shares of common stock of Starwood for $76.00 per share in cash. Pursuant to separate agreements entered into by Starwood, stockholders would additionally receive consideration in the form of Interval Leisure Group (“ILG”) common stock from the previously announced spin-off of its vacation ownership business, Vistana Signature Experiences, and subsequent merger with ILG, currently valued at approximately $5.50 per Starwood share, based on the 20-day VWAP (volume weighted average price) of ILG common stock ending March 11, 2016.

How much better is this than Marriott’s bid for Starwood? Traveling For Miles has a good rundown:

The Marriott offer to Starwood’s shareholders is a stock and cash offer which would see Starwood’s current owners receive 0.92 Marriott shares and $2.00 in cash for each share held in Starwood.

Based on Marriott’s 20-day volume weighted average price as of 11 March, Starwood shareholders can expect to receive approximately $63.74 per share (including the $2.00/share cash portion of the offer).

Starwood says that a consortium of companies have come forward with an offer of $76 per Starwood share, to be paid wholly in cash, for the outstanding shares of common stock in the hotel chain.

Based on Marriott’s 20-day volume weighted average price as of 11 March, that’s a 19% increase in purchase price.

A 19% increase in purchase price, plus the deal being all cash, must be very tempting. At the same time, the deal between Marriott and Starwood contains a $400 million breakup fee, which has to be factored in as well.

We should know more here pretty quickly. As part of the deal that Marriott and Starwood have, Starwood has a waiver which allows them to entertain other offers, should there be interest. That waiver expires this Thursday, March 17, 2016.

St-Regis-Singapore-2
St. Regis Singapore

Bottom line

It’s going to be interesting to see what comes of this, especially as a decision has to be made here pretty quickly. I know a lot of Starwood loyalists are dreading the Marriott takeover, so is this what we’ve been hoping for?

On one hand I’d prefer Starwood to be purchased by a company which doesn’t want to merge it into an existing mega-hotel chain.

At the same time, is the evil we know better than the evil we don’t know?

Do you think this has the potential to throw a wrench into the Marriott takeover of Starwood? How would you like to see this play out?

(Tip of the hat to View from the Wing)

Comments

  1. It is all about money!!!! $76 per share all in cash is a huge difference from the Marriott offer. Cash is King!!!!

  2. Don’t think it will impact Marriott aqcuiring Starwood, might raise the price for them some though.

  3. The Chinese bid allows the Starwood Management Company to continue and not be diluted or corrupted by Marrriott International. This also preserves the Starwood creativity which will undoubtedly be eliminated and replaced by the cookie-cutter design of Marriott Hotels. Not to mention the issues with the loyalty programs SPG & Marriott Rewards. On the other hand, there is also the possibility that the new Chinese owners will pick apart the brands and sell certain ones off….so who knows. But I remain cautiously optimistic with this new bid for Starwood.

  4. It is the same Chinese company that bought Waldorf Astoria NY and the hotel portfolio from Blackstone. So I expect they are not really the one who steps in and ruin the whole management. I really welcome them as another SPG loyalist.

  5. Prudens C – exactly! It appears they are putting together a luxury hotel collection . And probably have the funds behind them to polish the Starwood brand. As a frequent Starwood guests, and a shareholder of HOT, I see this as a very positive development.

  6. As to the $400 million breakup fee, who pays? If it’s Marriott, that would make it much more tempting to take the higher offer.

  7. @Christian – normally the breakup fee is whoever breaks the deal. In this case, it’d be Starwood if they took the Chinese deal which is why Ben talked about the $400 million as a potential negative of the Chinese group deal.

  8. Christian –

    Think about the logic of Marriott paying a $400 million breakup free if Starwood finds a better offer and terminates the agreement to go with that.

    Just think.

  9. Yea. Because a private company taking over a public one never resulted in reduced or diminished benefits.

    Be careful what you wish for… because you may get it, and not be what you expect.

  10. I actually don’t think the breakup fee is that big of a deal… due to tax law and accounting practices, the $400M fee is a part of the calculus, but no overwhelming, when weighted with upside for shareholder value.

  11. I do not know how well the Waldorf-Astoria is managed under the new Anbang chinese company but Anbang is an Insurance company and do not have much experience in managing travel and hospitality portfolios.
    The Chinese are also not known to have hands-off type management so there would certainly be changes to how Starwood management is handled which will trickle down to us, the customers should this new chinese deal actually succeed.

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