Anbang Withdraws Starwood Offer; Marriott And Starwood To Merge

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 was “reasonably likely to lead to a superior proposal”

Marriott-Starwood-Merger-1

As I recently explained, Anbang is a mysterious company, so they are a bit of a wild card. We don’t know what Starwood would look like under their ownership, though I’ve still been in favor of that over a Marriott merger:

  • 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; a merger between Marriott and Starwood 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

Well, unfortunately it looks like our hope of Anbang taking over Starwood won’t become a reality, as Anbang has withdrawn their offer for Starwood. Here’s a statement from Anbang, per CNBC:

“We were attracted to the opportunity presented by Starwood because of its high-quality, leading global hotel brands, which met many of our acquisition criteria, including the ability to generate consistent, long-term returns over time,” the consortium said. “However, due to various market considerations, the consortium has determined not to proceed further. We thank the Starwood board, management team and its advisors for their efforts and support throughout this process.”

Shares of both Marriott and Starwood stock fell today, which reflects how investors seem to feel about the news.

In theory another company could still try to beat Marriott’s offer in the coming days, though it seems unlikely.

Oh well, what can ya do? It has been fun to watch, at least.

Comments

  1. Lucky, I think you know deep down inside that all of the points programs (hotel and airline) are going to be extremely devalued in the long term. People will still want to spend miles and/or points instead of cash for first and business class travel (and your blog will still need to exist for reviewing airlines and hotel properties) but the golden age of points and miles are behind us 🙁

  2. I wonder if perhaps Starwood and Angbang were unable to come to terms regarding non-monetary parts of the acquisition (e.g. if Angbang wanted too much control) and this was a face-saving way to bow out.

  3. SPG Gold is the new Marriott Silver. If the analysts are right, Arne is going to gut this golden goose in the name of “operational efficiencies.”

  4. Look forward to Marriott pulling an Alaska when they massively devalue SPG points with no notice once the merger is complete.

    Then blame the “travel hackers”.

  5. Lucky and other OMAAT readers, I know you guys are disappointed that Marriott will take over and probably it is going to suck for SPG loyalists as the SPG rewards program may be seriously devalued after the Marriott merger but we don’t know and only time will tell.
    But honestly I think Anbang would not have been the better suitor anyways. Anbang is overpaying for these hotel properties because it is prestigious, not because they did actual proper valuation of what they can bring to provide value to Starwood. And for that I am not eager for that to happen. If it was an actual Chinese investment group that is focused on Hospitality and travel portfolio, it would be okay.

  6. That @Lucky considers Anbang’s folding “unfortunate”, knowing the full story of how this attempted M&A unfolded, makes one wonder whether the “hobbyists” have not completely lost their grip on reality. SPG was never a consideration in Anbang’s calculus, and the way Anbang apparently treated Starwood after they made their ludicrous $14B offer and then folded is by itself a powerful cautionary tell. What am I referring to? This in a CNBC report:

    “Reuters reported, citing sources familiar with the matter, that Anbang had never followed through with its March 26 proposal to Starwood to make its offer binding. The company did not provide a reason to Starwood for walking away, Reuters reported.”

    Got that? Anbang made the largest offer in history for a hospitality company but (a) never bothered to follow through, and then (b) walked away without even bothering to tell Starwood why. Conclusion: Anbang either never intended to make the purchases [just a PR move to become known as a big-leagues player] or they found themselves too deep in over their heads [they were worth just $75M in 2004, now they claim to be worth $25B, quite likely just a boast]. Either way, they lost and Marriott won… handily.

    Almost presciently, I’d cautioned against counting Marriott out too quickly. In fact, by refusing to be drawn further into a bidding war and then raising doubt about Anbang’s ability to navigate the treacherous regulatory waters or even be able to pay, Marriott may have masterfully and successfully done a bang of job of getting Anbang to develop cold feet and drop out. MAR’s decision not to make a counter offer to Anbang’s ludicrous $14B offer made the latter finally realize that they were about to pay too much. Once the doubt about the “value” of the deal was raised, everything else (i.e “market considerations”) got too real, including the regulatory difficulties and SCRUTINY that lied ahead… too much for a relatively “green” company to attempt, so they folded. That’s NOT “unfortunate”…

    …that’s Starwood dodging a bullet. Hopefully, they’ll be less “whorish” about selling to the highest bidder, if they have not learned their lesson and there is a next time.

    G’day from a junior suite at Courtyard by Marriott Downtown Baltimore! 😉

  7. Assuming this goes through, how long do you think we have before the potentially affects starpoints value/transfer ability, etc?

  8. @ DCS…you make some very interesting points. Are you a member of the Marriott Insiders perchance?

  9. Elementary, my dear @Captain Kirk. It’s called the power of deductive reasoning, aka, common sense, which seems to be in short supply in this twilight zone 😉

  10. @ DCS…you said…”Almost presciently, I’d cautioned against counting Marriott out too quickly. In fact, by refusing to be drawn further into a bidding war…MAR’s decision not to make a counter offer to Anbang’s ludicrous $14B offer made the latter finally realize that they were about to pay too much….”

    Marriott in no way needed to counter yet since the Starwood board never accepted Anbang’s last bid yet. Marriott would not have been in a position to counter anyway if HOT broke off the deal,the current Marriott offer is already EPS neutral in 2018 despite bumping up synergies by 25%.

    Anbang does not care about overpaying, because HOT is a currency hedge against the depreciating RMB. Even after the higher offer, the earnings yield for Anbang for HOT is ~4.5%, and then when you factor in the fact the they could have had a dollar based asset vs. a depreciating RMB that China is bleeding out several hundred billion to prop up, it would be compelling to buy HOT at this offer valuation.

  11. My guess is that someone in Anbang had a bunch of Starwood stock.

    Make a ridiculous offer to push up the price – sell stock – pull offer. Simple.

  12. I felt like Starwood had an incurable disease, and for just a couple of weeks, it looked it would be cured, but now it lies, ready to die.

  13. @greg – same thing I thought, someone pumping things up. They’re too shadowy a company, it sounds, certainly all isn’t out in the open. Could Marriott have any recourse for the higher bid they submitted?

  14. @Another Dude — I created a scenario based on a known outcome, and it is true that I had cautioned against writing MAR off. That is all. You can have your own scenario too, but it must be consistent with the already known outcome, which your contentions aren’t.

  15. Really???? These Chinese! What was the point of all this commotion? What does this mean for SPG members?

  16. The point of all of it was to manipulate the stock price. Source back to the puts and calls and I bet you there was a State run Chinese investment company buying Marriott and Starwood stock when the Ananbang offers came out and then selling off before the offer was withdrawn; and there is a State run Chinese investment company shorting Marriott and Starwood stock today.

  17. I’m at 20,000 Starwood points right now….should I convert them to Alaska miles now, or wait? :-O

  18. @ DCS…”already known outcome”? What exactly is known here? You said “…In fact, by refusing to be drawn further into a bidding war…,” which speculates that MAR is so smart they didn’t counter and instead, masterfully forced Anbang to get cold feet. That is purely speculative. No one knows why Anbang dropped out for sure.

    All I said was that MAR did not have to counter yet, not because they refused to, but because they had a binding agreement currently. No one will up their own offer if they did not need to.

    The “unknowns” in my scenario are whether or not MAR had enough to counter and why Anbang was buying assets outside of China at high valuations.

  19. @Another Dude — The outcome I am referring to, if I must spell it out, is that Anbang won’t be acquiring Starwood, which, therefore resets things to where they had been before the Anbang fiasco created a mild stir and raised hope among SPG loyalists (although the hope was justified by nothing more than the fact that Anbang was not Marriott, although I suspect that Anbang acquisition of Starwood would have been worse for SPG).

    I have no idea what you are after. OF COURSE, my scenarios are speculative!. Just make your own scenarios and but ensure that that are consistent with the known outcome.

    Knock yourself out….

  20. While I’m no SPG fanboy, having just got started collecting points with them this totally sucks. I’m sure they’ll take a good calendar year to merge the programs before SPG is gone as we know it. I’m going to try my best to transfer the points out of SPG for a solid redemption (Hi Singapore A380 suites!) if my schedule permits.

  21. I know this might sound dumb, but if that Chinese company so badly wants to diversify and is willing to overpay by a billion bucks, why don’t they instead use that money plus the 14 billion to start their own hotel chain or buy up a bunch of smaller ones and expand them?

  22. Marriott should likely have planned their hand, and also backed out of their second offer, and gone back to their original offer – take it or leave it.

  23. Lucky, the fact that shares fell today has nothing to do with Starwood merging with Anbang vs. Marriott. The shares of both Starwood and Marriott were rising because of speculative investors flooding the market and buying up shares of both companies from stockholders in advance of the prospective merger. Now that the Starwood-Marriott merger is confirmed, those buyers aren’t coming in anymore.

  24. Who cares about SPG? Less than 1300 hotels, many of them crappy. Ive been to one beat down Sheraton after another. SPG Platinum? No benefits. If you choose breakfast you lose your bonus points. The value of the point is moot when you only earn 3 points per dollar. Marriotts points get earned at 5X the rate of SPG and the highest category Marriott is 45,000 points. That would be like SPG highest category being 9,000 points. I was SPG Platinum and found the program to be absolute crap because it took forever to earn awards. Also..MARRIOTT TRAVEL PACKAGES!!! Best deal in all hotel loyalty redemptions.
    SPG Elite Spend required cash in 120,000 Airline miles – $33,333
    Marriott Platinum Spend required to cash in 120,000 airlines miles – $18,000 AND a 7 night hotel stay is included!
    So again…wHY SPG?! No one can say their hotels are better, maybe a few St Regis properties but for the most part, SPG hotels are poorly kept.

  25. @JR — Considering what is going with the bloggers’ favorite hotel loyalty programs that we shall not name, a ROCK seems like very apt characterization of Hilton Honors — solid as a ROCK 😉

  26. @ DCS – The Hhonors program may be “solid as a rock” but so many Hilton Hotels are crap, and I mean that literally. Garden Inn Midtown East had encrusted FECES on their toilet seats which isn’t the only Hilton with lousy housekeeping. That sort of thing only happens at a hotel chain when management thinks they are sitting pretty. BTW I’m writing this from my turd-free toilet at the Sheraton Nuremberg.

  27. @chancer: “…so many Hilton Hotels are crap but so many Hilton Hotels are crap, and I mean that literally”:

    I am sure you mean it literally but you could be very wrong, just as I might be if I made the same claims about another chain. You gotta do better than that.

    Bottom line: the whole comment smells like the part of your anatomy that’s quite likely doing the “thinking”…

    G’day.

  28. @ DCS – FYI your quote is jumbled. Sorry, but not only is the image of encrusted feces at the Garden Inn Midtown East burned into my eyes, I have photos to help me remember in case I ever think about making a reservation there again. No need to “do better.” I consider it doing people a favor letting them know to take a closer look at their hotel toilets, but if they only want to believe that a housekeeping visit means a clean room, they are free to park their behinds inches from previous guests’ excrement, as are you.

  29. @chancer — The quote was not jumbled. It was repeated purposely for emphasis.

    This is quite simple. Rather than to keep treating us to your scatologically unsavory images of Hilton properties that are nothing more than a fictitious construct of your scata-filled imagination, just do yourself a favor and stop staying at Hilton properties!

    It’s like:
    You: “Doctor, it hurts when I do this”.
    Doctor: “Well, do not do that it won’t hurt!”

    GOODBYE.

  30. Interesting look-in

    http://www.wsj.com/articles/behind-anbangs-curious-starwood-courtship-1459730791

    No wonder they keep preferring Marriott. Wu Xioahiu calling last-minute, forcing people to change plans, but not showing proper financing on multiple occasions. Showing up just before Marriott was meant to close, with ability to show financing. Mr Wu coming to meetings with team of people, but not consulting them. Lack of vision other than expanding Sheraton brands in China. Second offer to counter Marriott was good enough it forced Starwood to consider. B/c of all that they insisted that Anbang agree to pay even if the Chinese regulators denied. They would have to pay up regardless. Yet, they couldn’t prove financing that second time and after radio silence had their law firm announce they withdraw.

    Having advisors without consulting them or them even speaking is not too odd for a Chinese M&A deal, but it sounds like someone from CPC eventually said “No” and Mr. Wu lost in getting that changed. If they wanted to, they would have had financing; no way they add a pay-up clause regardless of approval without some assurances. The sporadic nature sounds like Mr Wu wanted it, but had to continually convince ‘someone’ along the way, leaving them to get things together last minute, until he got a hard stop.

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