Starwood rejects Marriott, chooses Anbang's sweetened buyout offer

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Starwood Hotels & Resorts said Friday that a group led by China-based Anbang Insurance Group raised its buyout bid for the hotel company to $13.2 billion, and that it will accept the offer and terminate Marriott International's buyout agreement.

The Anbang group, which also includes J.C. Flowers & Co. and Primavera Capital Ltd., raised its all-cash offer to $78 a share from the bid of $76 per share submitted on March 10.

Starwood is giving Marriott until March 28 to submit a counteroffer. Starwood canceled a shareholders meeting for March 28 to vote on the Marriott agreement, while Marriott said Friday that it may cancel its March 28 shareholders meeting.

In a statement on Friday, Marriott said, "Marriott continues to believe that a combination of Marriott and Starwood is the best course for both companies and offers the best value to Starwood shareholders. Marriott is in the process of reviewing the Anbang consortium's proposal and is carefully considering its alternatives."

Starwood agreed to be acquired by Marriott in November. While the value of that buyout was estimated at about $12.2 billion at the time ($70.08 per Starwood share in Marriott stock and $2 per Starwood share in cash), Starwood said Friday that the value of Marriott’s proposed buyout has fallen to $65.33 per Starwood share, or about $11 billion, because Marriott’s stock price has fallen in the past five months.
 
Starwood, whose brands include W, St. Regis and Sheraton, is subject to a $400 million termination fee for ending the Marriott agreement. Factoring that in, Anbang’s all-cash offer is still worth about $1.8 billion more than Marriott’s predominantly stock-based offer.
 
With a Starwood acquisition, Marriott would have become by far the world’s largest hotel company, overseeing about 5,700 hotels across 30 brands.

Starwood shares as of 9:20 a.m. Eastern time were up more than 5% from Thursday to more than $80 a share in pre-market trading.

Why did Marriott grant a waiver?

Marriott CEO Arne Sorenson has long maintained that size matters, and that adding Starwood to Marriott’s portfolio would provide a significant boost to his company. Why, then, would Marriott give Starwood a waiver to speak to another suitor so late in the game?

It was a calculated gamble, a person with knowledge of Marriott’s thinking told Travel Weekly. Marriott realized that to forbid the talks could lead to bad feelings that would make finishing up the acquisition and integrating Starwood that much more difficult.

Marriott also believed that Starwood’s preference for stock over cash would weigh heavily in Starwood’s decision-making; the Marriott stock being offered with cash for Starwood, if held, could have positive tax implications for Starwood shareholders. And if Starwood did ultimately go to Anbang, that result would be preferable, and less threatening, than if it had gone to one of the global hospitality companies that Marriott had been bidding against in the first place. That, plus the possibility of a $400 million consolation payoff, led Marriott to sign the wavier. And, they reasoned, Marriott would likely have the opportunity to make a counteroffer, should it come to that, with, in essence, a $400 million head start.

Travel Weekly also heard suggestions from hospitality executives not affiliated with Marriott that an American hospitality company that had lost out to Marriott, and which dreaded the large scale of a Marriott-Starwood combination, may have played an active role in urging Anbang to make a bid.

This report was updated March 18 at 11:30 a.m. Eastern.

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