Marriott International is facing the prospect that four months of work toward completing a purchase of Starwood Hotels & Resorts Worldwide is about to come undone.
Starwood received a takeover offer of $82.75 a share, or $14 billion, from a group led by China’s Anbang Insurance Group. That’s higher than Marriott’s last bid, raising the stakes for the lodging company to counter a second time to save a merger that would create the world’s biggest hotel operator. Marriott has planned on the acquisition since November, when Starwood first agreed to be bought by its larger rival in a cash-and-stock deal.
“The time and energy they’ve invested is not something they’re going to happily walk away from,” said Tom Baker, corporate managing director at commercial real estate services firm Savills Studley. “It’s just a question of can they justify paying more than they’ve already bid, and at what point does it stop?”
Marriott’s options include letting Anbang buy the company it covets; paying a price so high that the merger may become too financially risky; or finding ways to make a more-expensive acquisition pencil out, possibly through property sales. The 89-year-old company, founded by the father of its executive chairman, has been acquiring hotel companies to expand globally, though none of its targets have been as big as Starwood.
‘Not Easy’
“I don’t think there is a better way to make this work, unless Marriott arranged the concurrent sale of the real estate for a very high price,” David Loeb, an analyst at Robert W. Baird & Co., said in an e-mail. “That is possible but not easy.”
Starwood owns real estate valued at about $4 billion, including the St. Regis in New York.
Shares of Starwood rose 2 percent to $83.75 at the close of trading. Starwood’s share price includes about $5.95 a share for the pending spinoff of its timeshare business. Marriott climbed 3.9 percent to $71.34.
Starwood said it’s in negotiations with the Anbang group after receiving a nonbinding offer of $82.75 a share in cash. Marriott’s second stock-and-cash proposal is valued at about $78 a share, or about $13.2 billion, based on Monday’s closing price.
In Anbang, Marriott Chief Executive Officer Arne Sorenson confronts a 12-year-old Chinese company that has moved aggressively to expand outside its home country, part of a tidal wave of Chinese appetite for foreign assets.
‘Best Course’
Marriott reaffirmed its commitment to buying Starwood, which it wants for its loyal pool of guests and brands including Sheraton, Westin and W, saying on Monday that the “previously announced amended merger agreement is the best course for both companies.” The combination of Marriott and Starwood would create a hotel behemoth with about 5,700 properties and 1.1 million rooms.
Sorenson said on March 21, the day that Starwood said it accepted a sweetened offer from Marriott, that its original merger agreement was “amazing” and perhaps “too good” in hindsight because it drew a rival suitor.
Bigger Marriott
Sorenson is aiming to make Marriott bigger, to gain economies of scale and greater bargaining power with online travel agents, and attract younger travellers to compete with upstarts like Airbnb. He joined Marriott 20 years ago after working in mergers and acquisitions at Latham & Watkins in Washington. He got to know Chairman Bill Marriott - still addressed as Mr. Marriott in public - when he defended the company in a lawsuit. Sorenson, who has been CEO since 2012, is only the third CEO in Marriott’s history and the first non-Marriott family member to lead the company.
Marriott has room to raise its offer for Starwood yet again, Christopher Agnew, an analyst at MKM Partners, said in a research report Monday.
“We believe Marriott could bump its cash offer by a couple of dollars to regain its position as having a superior” bid, he said.
But some analysts, including Lukas Hartwich of Green Street Advisors, see Marriott as having limited scope to increase its offer without turning a potential win into a Pyrrhic victory.
“Based on the synergies Marriott has outlined, it doesn’t seem likely they could match the Anbang consortium’s price without giving away most/all of the value they expect to create by combining the two companies,” Hartwich said in an e-mail.
News by Bloomberg, edited by Hospitality Ireland
