What Is Anbang, And Why Are They So Mysterious?

The past few weeks we’ve seen a fierce battle for control of Starwood, as Marriott and Anbang have been bidding against one another:

  • Last November, Marriott agreed to purchase Starwood, with each share of Starwood stock being worth 0.92 Marriott shares plus $2 in cash
  • Then in March, Chinese insurance group Anbang made an offer of $78 in cash per share, which Starwood accepted
  • Then days later, Marriott made an offer which Starwood accepted, where each share of Starwood stock was worth 0.8 Marriott shares plus $21 in cash
  • Then this Monday, Chinese insurance group Anbang made an offer of $82.75 in cash; while it wasn’t immediately accepted, Starwood’s Board of Directors indicated it is “reasonably likely to lead to a superior proposal”

Marriott-Starwood-Merger-1

While publicly and officially the Starwood board is still recommending the Marriott merger, it looks like Anbang is the likely winner, since Marriott isn’t willing to go higher on price… at least in theory. Marriott would still walk away with a breakup fee of up to $468 million, so they wouldn’t walk away empty handed.

When it was clear that Marriott couldn’t win on price, Marriott instead turned to non-pricing terms to create doubt regarding Anbang:

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.

What’s interesting is that most Starwood loyalists (including me) are hoping the Anbang offer comes out on top, even though we know almost nothing about the company. Why?

  • We’ve seen what consolidation has done to the airline industry, and we don’t want to see the same happen to the hotel industry; it would eliminate a competitor, and competition is good for consumers
  • Based on what we know, it seems like Anbang is simply trying to diversify and globalize their investments, so they very well may let Starwood still run pretty independently
  • This could be either a good or bad thing, but if anything Anbang might have lower expectations of ROI than a publicly traded company in the US, given that it sure seems like they’re about diversifying their investments rather than simply getting the highest return possible

But there’s a lot of mystery surrounding Anbang, and it’s the subject of a New York Times article which was published yesterday. Like the fact that Anbang’s fax number is for a dentist’s office, and two of Anbang’s shareholders have websites with porn and gambling links.

Anbang isn’t the most transparent company out there, as they’ve grown exponentially over the past few years, without much information on where that money came from:

At a time of growing demands for transparency in business and finance, some experts say it is striking that an opaque Chinese insurer is forging headline-grabbing deals in the United States, especially in an election year that has put China’s economic influence under scrutiny as never before.

Anbang, founded only in 2004, exploded in size two years ago, as those same 37 companies poured billions of dollars into its coffers.

“Any time somebody in China magically snaps their fingers and has a lot of money, in this case a colossal amount of money, that sets off red flags for me,” said Christopher Balding, associate professor of finance and economics at Peking University’s campus in Shenzhen, a city in southern China. “It’s in their interest to share information to say ‘we come in peace,’ but there’s just not that culture of information-sharing. In China, when people are hiding this amount of information, it’s for a reason.”

Just how hidden are many of the shareholders making up Anbang?

For example, one Anbang shareholder — a coal mining company in China’s western region of Xinjiang — is owned by another mining company, Zhongya Huajin, that listed a Zhuo Ran as its first legal representative, though that person has since resigned.

Zhongya Huajin shares an official website address with a different Anbang shareholder, a Beijing real estate company. Collectively, those companies own nearly 4.6 billion shares of Anbang, or more than 7 percent. The companies could not be reached for comment, and their common website now contains only links to pornography and gambling services.

Check out the full New York Times article for more, as it’s a fascinating read.

Bottom line

It’s interesting to read more about Anbang, given how many of us (blindly) support a takeover by them rather than Marriott. I really enjoyed this article, since it talked a bit more about Anbang, or rather just reaffirmed how mysterious they are. So perhaps I’m crazy, but I still prefer a takeover from an unknown company over a Marriott takeover.

Even if Anbang were to ruin Starwood (which I hope they won’t), I still think the industry would be better off with Marriott and Starwood separate. If the two were to merge, then we’d likely see the same thing we previously saw in the airline industry. I bet we’d see further consolidation among Hilton, Hyatt, IHG, etc., and that’s not good for consumers.

Do your opinions about Anbang change after reading this article?

(Tip of the hat to @gobears99)

Comments

  1. This NYT article: http://www.nytimes.com/2016/03/23/business/dealbook/the-unsettling-acquisitiveness-of-a-chinese-insurer-in-the-us.html

    Gives strong reason to worry about Anbang being a more meddlesome owner than one might prefer. From the selfish perspective of an SPG elite I don’t much care about whether Anbang portends some greater economic challenges in China, but the fact that they like to be difficult to the management teams of companies they own is worrying.

  2. So what they’re trying to say is that this is one of three things:

    1) Money skimmed by Chinese government leaders, either legally or illegally
    2) Money laundering by the Chinese mob
    3) A company that buys up companies for their available cash positions and sucks them cash-dry to pay for other investments

    I don’t see how any of those things are better for the operators of Starwood properties than being reflagged as Marriott. And I had a Starwood property getting close to the end of its franchise agreement, I’d be looking hard at reflagging at my earliest opportunity.

  3. Anbang is dodgy beyond belief. Their growth is a mystery to anyone in Asia. That they have cash is not in question. What is doubted is where the cash comes from and whether they are intrinsically (unavoidably) beholden to some political figures. They have a sudden and inexplicable interest in hospitality, totally at odds with their investment strategy till date.

    http://www.economist.com/news/finance-and-economics/21642197-once-obscure-chinese-financial-firm-leaps-spotlight-big-anbang

    http://www.reuters.com/article/us-starwood-hotels-m-a-anbang-profile-idUSKCN0WH194

    They’re clearly carrying out instructions from the PRC government for Chinese companies to invest abroad, but it is undoubtedly true that they’re opportunists, rather than experts. They would leave the current management of Starwood untouched. Whether that is a good thing or a bad thing depends on whether you’re a shareholder or a guest. 🙂

  4. @ DSG –as this is an all-cash offer, what happens to Starwood in the future isn’t a concern to any current shareholder. Whereas with a Marriott deal, Starwood shareholders also have to take into consideration future prospects of Marriott’s stock.

  5. So, this whole SPG takeover thing is just a detailed version of the Nigerian lottery scam, isn’t it? I’m imagining the final scenes of the movie, where SPG is told where to pick up their money, only to find an empty dentists’ office, and then the scene cuts to Marriott’s boss on the beach in the Turks and Caicos counting $480 million.

  6. I’d put it as a “legal” means to hide/invest ill-gotten gains from major players who have SOOOO much $$ that simply buying foreign assets to get their money out of China has been too tedious and not large enough. It’s sketchy any way you look at it, but given not only how many billionaires China has created, but multi-multi-millionaires in the past 10 years, it appears to me to be a “hedge fund” for those ill-gotten gains and they have so much cash on hand, that they need to do something with it….even if that means overpaying for Starwood.

    If I was Marriott, I too, would step back and let someone else take the hit and likely in 5–10yrs cherry pick properties from Anbang, assuming they haven’t driven it into the ground by then and plundered the assets. I mean, by “doing nothing” they stand to “make” ~ 1/2 billion dollars. You can’t tell me they put that much human effort/time/OT/consultants into the deal in the short amount of time. That’s laughable. Sure they may lose out of expanding their properties, but the execs stand to make a fat a** bonus either way. Doing nothing, just means it comes all the quicker.

  7. Everyone in china who has a little knowledge behind the scenes know it’s Deng Xiaoping’s family business. So there is no mystery about it…yeah he passed away like 20 years ago it doesn’t say that his power is gone. Diminished for sure but his family still has to eat and live, right?

  8. Obviously Ben/Lucky selfishly prefers this to Marriott since it would likely change the redemption and earnings model, and elite benefits to better recognize cold hard spending like the airlines have done, not bloggers looking to exploit promos. Oh and did I mention this will likely mean one fewer credit to hawk and gain affiliate marketing compensation from?

    Hopefully the institutional investors who actually own large numbers of HOT shares will make a prudent decision after careful research and analysis not a selfish, emotionally driven choice based on a vendetta against Marriott and their Marriott Rewards program.

  9. I read the article yesterday. Assuming it’s fairly accurate, Anbang is a shady outfit to say the least and it totally changed my view of this bidding war. As an SPG loyalist my earlier reaction was that I would prefer to keep Starwood out of the hands of Marriott. After reading it, my reaction is that there’s a pretty good chance that Anbang would run Starwood into the ground – bad news whether you’re a stockholder or a guest. I’ve seen it happen with commercial properties in Southern California that wealthy Chinese have purchased obviously just to park money offshore but with no understanding of how to increase – or even maintain – current value.

  10. The more look at this, the more skeptical I’m becoming of this deal.

    I look at the LA Hotel Downtown, which was supposed to be converted to a Hyatt. That property is owned by a group from China. For whatever reason, it never happened. It’s been two years and that hotel is still operated independently.

    I sound like a broken record but becareful what you wish.

  11. Oh my god a large corporation has a shady history and seems like they just don’t have a soul!

    That’s called capitalism, ain’t it? Would really like to see the number of companies in which the Koch Brothers have a large number of shares… The story could be the same as any chinese corp.

    Either way, the thought and outcome are always the same: “screw the costumers, let’s just make more money!”

  12. I seriously doubt dodgy government officials or Chinese mobs would be willing to accept this kind of exposure from taking on such high profile deals and showcasing their dirty money… It’s a suicide mission…
    It’s more like a Hollywood studio in the 60s backed by a bunch of loaded outsiders.

  13. I just wouldn’t trust anything coming out of mainland China, and considering how much influence they are exerting across the strait…I am wary of anything coming out of Taiwan as well. I am shocked that a Westerner who is a professor in a Chinese University has negative things to say about an obviously politically connected company.

  14. The good news is they have a dedicated fax line to a dentists office when you have a toothache
    The bad news is that’s where the new SPG call center will also be located in some dentists office in China
    Probably make IHG in Manila look like rocket scientists
    I’m not sure which is worse every Starwood hotel being rebranded as a Courtyard or The AirShebang company taking over Starwood. Perhaps the Chinese food will be good in their hotels going forward and you can earn Starpoints and redeem them for egg rolls?

  15. I find it interesting that those followers of OMAAT who take every opportunity to disparage Lucky and the team over a wide variety of issues still somehow find enough time in their day to follow the blog. I would think they would instead follow something that is more agreeable to them.

  16. To be fair, Anbang would hardly be the first large Chinese or Asian company without a proper website – it’s just not seen as a necessity at this point in time. Anyway it’s a holding company so there’s likely a skeleton staff working there, probably just the chairman, CEO, maybe a few top guys and their support – the real operating companies are its subsidiaries. This would be a more accurate list of contact details: http://www.ab95569.com/announcement/todetailAnnouncement.htm?id=1007201201KXIVRWUW

    I mean, anyone tried contacting Berkshire Hathaway before? Check out their website – would you believe it is a major corporation if you had not heard of it before?: http://www.berkshirehathaway.com/

  17. I think you’re getting no confused between a Starwood loyalist and a shareholder. The loyalists can want this as much as they desire, but ultimately, the shareholders will decide what’s better for their investments. Shareholders don’t really give a damn what the consumer wants as long as it pays out

  18. @dt Berkshire may have a barren site, but it links to loads of SEC filings giving people plenty to pore over…no such thing with Anbang

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