Marriott International Inc’s counter offer worth $13.6 billion put down on the table to show that it would not back down to rivals for the acquisition of hotel giant Starwood Hotels and Resorts Worldwide, has been accepted. The bid essentially removed Chinese company, Anbang Insurance Group, from the deal.
Marriott faced tough opposition from Anbang which initially disrupted the Marriott-Starwood merger in November 2015. Marriott’s earlier arrangement for a cash and share exchange was valued at a lower figure against Anbang’s $12.8 billion cash offer.
However, Starwood managed to get out of the deal, paying Marriott $400 million in termination fees. Days later, Anbang revised its submission making it binding and further increased the cash price to $13.16 billion or $78 per share. The Chinese company was assured that its bid was fully financed with the consortium it has formed with an American private equity firm, J.C. Flowers & Co. and Chinese investment firm Primavera Capital.
Marriott did not take the challenge sitting down and not only did it raise its valuation, it also increased the cash share of the deal from $2 to $21, bringing the total value per share to $79.53, in order to convince Starwood that its proposal is better than that of its rival.
Marriot rationalized the new appraisal by saying that estimated operational synergies turned out to be higher at $250 million per year from the original assessment of $200 million.
Arne Sorenson, CEO of Marriott said that they significantly increased the offer but only up to the point that it still creates value for their shareholders:
“We are really interested in the strategic power of this platform.”
Anbang has been putting together a strong portfolio of high value real estate in the U.S. It now owns Waldorf Astoria in New York having just closed a deal for Strategic Hotels & Resorts Inc from Blackstone Group LP for $6.5 billion.
However, Marriott has a clearer strategic plan. With Starwood, it would have a total of 1.1 million rooms worldwide. This gives them the advantage of bookings, exploiting the digital marketing space, negotiating with travel agents and encouraging guests with their loyalty program. Sorenson said:
“We didn’t understand as well as we do today the advantage that this extraordinary ecosystem, through the loyalty program, would give us.”
Although Marriott insists that this is purely a business deal, the deal can also be labelled as something that the US government also favours greatly. Starwood, as an American company, has recently closed a milestone deal to be the first large scale US investor for more than fifty years in Cuba. A win by Anbang in the bidding war would completely change the triumph for the U.S.
China is not too keen on Anbang further spreading its portfolio abroad and reports say that China’s insurance regulator might pull back due to Anbang’s overseas investments which are going beyond the allowed percentage.
Anbang still has the opportunity to make another counter offer to Starwood with a deadline of April 8.