Bidding War Between Chinese Insurer and Marriott Heats Up

March 29, 2016 Updated: April 2, 2016

The bidding war to acquire Starwood Hotels intensified after Chinese insurer Anbang raised its offer on Monday, March 28. The new offer is likely to threaten Marriott’s merger plan with Starwood.

Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT) announced on Monday that it received a revised nonbinding offer from the consortium led by Anbang Insurance Group. The offer is likely to lead to a superior proposal and allow Starwood to engage in discussions with the consortium, according to the company’s press release.

The consortium revised its bid to $82.75 per share in cash, an increase from the $78 per share proposal made on March 18. This tops Marriott’s latest bid on March 21, which was valued at $79.53 (in cash and stock). 

Anbang’s new offer raised the value of Starwood to $14 billion, Marriott’s offer was $13.6 billion.

Marriott International, Inc.(NASDAQ: MAR) reaffirmed its commitment to acquire Starwood on Monday and stated, “The combined company will offer stockholders significant equity upside and greater long-term value driven by a larger global footprint, wider choice of brands for consumers, substantial revenue synergies, and improved economics to owners and franchisees leading to accelerated global growth and continued strong returns.” 

In its statement, Marriott also questioned Anbang’s ability to finance the transaction and get the necessary regulatory approvals: 

“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.” 

Starwood, the owner of St. Regis, W, Westin, and Sheraton brands, will have to pay Marriott $450 million to break up the merger arrangement. 

Both Marriott and Starwood announced they had agreed to merge in a cash and stock deal that would value Starwood at $12.2 billion last November. Both companies signed an amended merger agreement after Mariott sweetened its bid for Starwood on March 21, valuing the company at $13.6 billion. 

The merger, if it still goes through, would create the world’s largest hotel company. Marriott is confident it can achieve $250 million in annual cost synergies within two years after closing the Starwood deal.

After the news on Monday, shares of Starwood rose 2 percent, to $83.78. And shares of Marriott rose 3.93 percent, to $71.34.

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(Google Finance)

Other consortium members acting together with Anbang in the Starwood deal are the two private equity firms J.C. Flowers & Co. and Primavera Capital Limited.

Founded in 2004, Anbang made a surprising move in the United States last year by acquiring New York City’s Waldorf Astoria Hotel. The company has aggressively taken billions out of China and invested in insurance companies in the United States, Belgium, the Netherlands, and South Korea. 

It also offered $6.5 billion to buy Strategic Hotels & Resorts Inc., which owns several high-end properties including the JW Marriott Essex House in New York and Hotel Del Coronado in San Diego.

The Waldorf Astoria Hotel in Midtown East in Manhattan on Oct. 6, 2014. (AP Photo/Mark Lennihan)
The Waldorf Astoria Hotel in Midtown East in Manhattan on Oct. 6, 2014. (AP Photo/Mark Lennihan)

Recent Deals May Attract Scrutiny

Given Anbang’s ties to the Chinese Communist Party, such transactions present security issues.

There is plenty of reason for controversy. The chairman of Anbang, Wu Xiaohui, is the grandson-in-law of the former leader of the Chinese Communist Party, Deng Xiaoping.

One of Anbang’s consultants is Chen Xiaolu, founder of the Red Guard Police Corps during the time of Mao Zedong’s Cultural Revolution, who had previously admitted he was part of the torture and persecution of teachers during the Cultural Revolution. His father was one of the communist regime’s founding generals.

Anbang’s $1.95 billion acquisition of the iconic Waldorf Astoria Hotel last year, attracted scrutiny from the Committee on Foreign Investment in the United States (CFIUS), which reviews deals over possible national security concerns, but was eventually approved. According to experts, CFIUS will also take a look at Anbang’s latest activities. 

Follow Emel on Twitter: @mlakan