NOTE: Marriott on Monday submitted a higher bid for Starwood, which was accepted.
Marriott International could very well increase its bid for Starwood Hotels & Resorts in response to a higher competing offer from a group led by China-based Anbang Insurance Group, though it may not be enough to sway Starwood shareholders, financial analysts said Friday.
The Anbang group raised its all-cash offer to $78 a share from the bid of $76 per share submitted on March 10, valuing the offer at $13.2 billion. Starwood accepted the offer and is giving Marriott until March 28 to submit a counteroffer.
SunTrust Robinson Humphrey analyst C. Patrick Scholes, in a note to clients Friday, wrote that Marriott would likely boost its offer “slightly.” Starwood agreed to be acquired by Marriott in November, and 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).
However, 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.
“Marriott had attempted to scoop up Starwood because the price of Starwood was compelling, rather than it being an absolutely necessary acquisition,” Scholes wrote. He added that Marriott “never felt desperate to make this acquisition.”
J.P. Morgan analyst Joseph Greff, in a note to clients Friday, was more specific, estimating that there was a 40% chance Marriott would boost its bid by as much as $3.50 a share (or about $600 million) and a 60% chance that Marriott “walks away and pockets the $400 million cash break-up fee.”
RBC Capital Markets analyst Wes Golladay said that Marriott may make a “marginally” higher offer of an additional $4 to $5 per Starwood share. Even though that would keep Marriott's bid below Anbang’s, Starwood might consider it, Golladay said, because Anbang’s acquisitive activities might generate increased scrutiny from U.S. regulators, possibly lengthening the acquisition process and making Marriott’s offer look more attractive.
Besides the Starwood bid, Anbang earlier this week reached an agreement to acquire Strategic Hotels & Resorts for $6.5 billion. That deal and the Starwood deal would have to be approved by the U.S. Committee on Foreign Investment. That committee already had approved Anbang's acquisition of the Waldorf Astoria New York for $1.95 billion last year.
Outside the hotel industry, the U.S. Committee on Foreign Investment earlier this week approved Anbang's $1.6 billion purchase of life insurance company Fidelity & Guaranty Life.
While increased regulatory scrutiny could be a negative, a positive could be avoiding the branding glut that a Marriott acquisition would create. A Marriott-Starwood combination would put 30 hotel brands under one umbrella.
“Anbang is willing to take a lower return on investment [than Marriott] to diversify,” said Golladay. “Starwood likes its collection of brands, and I’m sure the new owner would like them, as well.”
Anbang may be able to achieve some cost savings and operational efficiencies by either employing Starwood management to help oversee Strategic Hotels' operations or moving Starwood’s owned properties into the Strategic group, said one analyst.