Anbang, the Chinese insurance company leading a consortium of investors that upped its offer to acquire Starwood Hotels & Resorts to $15 billion after Marriott International trumped its initial attempt to outbid it, abruptly checked out of the process yesterday.
“It’s a shock,” says James Corl, managing director at real estate private equity firm Siguler Guff & Co. “My guess is it boils down to some regulatory risk.” But Primavera founder Fred Hu, a former partner and chairman of Greater China at Goldman Sachs Group, says “the reason of withdrawal is simple — Anbang isn’t interested in a protracted bidding war,” in an e-mailed comment to Bloomberg.
Anbang’s partners include Primavera Capital, which has offices in Beijing and Hong Kong, as well another private equity firm, New York-based J.C. Flowers.
“What happened to Anbang’s takeover effort is unclear. In a statement on Thursday, the insurer’s consortium blamed unspecified ‘various market considerations’ for its need to withdraw,” Michael J. de la Merced and Leslie Picker report for the New York Times.
“The abrupt withdrawal of the offer raised new questions, including whether the Chinese government, which has close ties with Anbang, had blocked the proposed transaction, or whether the insurer and its fellow bidders had run into issues with the financing for the deal,” they continue.
It also “risks reviving longstanding doubts in the minds of sellers and advisers about the seriousness of some Chinese suitors,” write Arash Massoudi and Adam Samson for Financial Times after pointing out that Chinese investors have “accounted for a record share of global merger and acquisition activity” so far this year. “Anbang’s consortium had shared no details in public about the sources of its financing and offered no comment on Thursday about whether it had fully funded its offer.”
A merger of Starwood and Marriott, “the owner of Ritz Carlton, Courtyard by Marriott and the extended-stay Residence Inn, would create the world’s No. 1 hotel chain with more than one million rooms and 30 brands,” write Craig Karmin and Dana Mattioli for the Wall Street Journal. “Marriott’s deal to buy Starwood was seen as the clearest sign yet that hospitality companies view mass scale as critical to their success at a time when the Internet is erasing old barriers to global expansion in the lodging business.”
Starwood’s “brands include upscale hotel chains like W Hotels, Westin, Aloft and Le Meridien, and the company also sits on a trove of real estate assets valued at $4 billion by R.W. Baird analyst David Loeb. For Marriott, the acquisition is strategic given both companies’ operational overlap and the popularity of Starwood’s rewards customers,” reports Antoine Gara for Forbes.
What exactly will happen to those vaunted Starwood points if the deal goes through? Marriott’s own reward program is not nearly as lavish. WNYC’s Money Talking host Charlie Herman put the question to the AP’s Scott Mayerowitz, who says it’s a “big, big concern … especially for those top-tier road warriors.” Then again, Marriott has indicated that it wants to learn from the success of Starwood’s program, so look for a blending of the two approaches.
Many of the two companies assets are in the same market, CrediFi CEO Ely Razin points out in a bylined piece in National Real Estate Investor, and that many lead to a more tangible consolidation.
“Just as when two individuals marry and each already has a home and other duplicate belongings that need to be combined or sold off, the question is what will happen to these hotels if Starwood and Marriott seal the deal,” Razin writes. “There is the possibility that they could all live together in harmony, with plenty of tourists and business travelers in the Big Apple to go around.”
Or not, particularly in New York City, where Marriott has 144 hotels and Starwood has 37, with eight more scheduled to open by 2020.
In after-hours trading Thursday, Starwood shares fell 4.4% to $79.75 and Marriott shares slid 5% to $67.64, the AP reports. The companies issued a joint press release yesterday that “encouraged shareholders of both companies to vote in support of the proposed merger?” Voting is schedule for April 8.
A webcast at 9 a.m. ET will feature Marriott president and CEO Arne Sorenson, its EVP and CFO Leeny Oberg, and Starwood CEO Thomas Mangas presenting the case for the merger. It can be viewed here. Bring your own popcorn.