Marriott unlikely to top Anbang offer for Starwood: Observers

By PAUL WELITZKIN in New York | China Daily USA | Updated: 2016-03-21 09:42

Marriott international Inc may increase its bid for Starwood Hotels & Resorts Worldwide Inc, but it is unlikely to top an enhanced offer from China's Anbang Insurance Co for Starwood, according to analysts.

Starwood accepted a $13.2 billion takeover bid by Anbang on March 18 and gave Marriott until March 28 to make a counteroffer. Anbang and its partners – China-based Primavera Capital and private equity firm J.C. Flowers & Co – said they will pay $78 a share in cash for Starwood.

That offer is $2 a share more than the unsolicited bid the Anbang group made last week and tops Marriott's cash-and-stock deal last year which is currently worth about $69.50 a share, according to Bloomberg.

"We expect Marriott will counter the (Anbang) proposal given that Marriott has not yet canceled its shareholder meeting (scheduled for March 28) and Marriott continues to see long-term value in a combined platform. We believe Marriott's revised bid for Starwood's hotel business will have an implied valuation of less than $78 a share. We do not expect Marriott to engage in a protracted bidding war," analyst David Loeb of Robert W. Baird & Co wrote in a March 18 research note to investors.

"Acknowledging that Marriott is a disciplined management team that never felt desperate to make this acquisition, we expect Marriott to come up slightly on the offer," said C. Patrick Scholes, analyst at SunTrust Robinson Humphrey Inc in a note to investors.

Peng Liu, a professor at the Cornell University School of Hotel Administration, doesn't expect Marriott to engage in a bidding contest. "Marriot is a great company and can still do very well without being the largest hotel management company in the world," he said.

"(Hotels) are a good sector to invest for most Chinese firms because Chinese outbound travel and consumption have been high – about 120 million outbound travelers. A Chinese company that owns hotel assets in the US can capitalize (on this market)," added Liu.

It's not clear if an Anbang-Starwood combination will draw an official review by the Committee on Foreign Investment in the United States (CFIUS), an interagency group that has broad authority to review transactions in which a foreign company acquires control over a US business.

"I would expect them to take a hard look at the transaction," Anne Salladin of Stroock & Stroock & Lavan LLP in Washington said in an interview.

Michael Wessel, a commissioner with the US-China Economic & Security Review Commission in Washington, also believes CFIUS will have a role.

"Starwood has a significant number of properties, some of which may be close to, or with sight-lines to critical government facilities. Law enforcement will have to assess whether the acquisition of these properties by a Chinese entity raises any significant security issues and, if so, whether appropriate mitigation plans can be implemented to protect national security interests. That may or may not require certain assets to be removed from the transaction," Wessel said.

Anbang seems comfortable with the CFIUS process having had two deals successfully reviewed. The acquisition of the Waldorf Astoria Hotel in New York was approved last year, and the purchase of US life insurance provider Fidelity Guaranty and Life gained approval last week.

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