Boy, the battle for Starwood must be one of the most reality show-esque things we’ve seen in the travel industry over the past couple of years, perhaps along with the never-ending battle between Akbar Al Baker and Richard Anderson, and the battle between Alaska and Delta in Seattle.
This morning we learned that Starwood has received yet another offer from Chinese insurance group Anbang, for $82.75 in cash per share of Starwood. Starwood’s Board of Directors has indicated that this is “reasonably likely to lead to a superior proposal,” and that the two companies are now discussing non-price related terms. So the board sounds confident in the offer, but not completely convinced… yet.
This comes after:
- Last November, Marriott agreed to purchase Starwood, with each share of Starwood stock being worth 0.92 Marriott shares plus $2 in cash
- Then in March, Chinese insurance group Anbang made an offer of $78 in cash per share, which Starwood accepted
- Then days later, Marriott made an offer which Starwood accepted, where each share of Starwood stock was worth 0.8 Marriott shares plus $21 in cash
As of now it seems like Starwood is likely to go with the Anbang deal, given that the board has indicated that it’s likely a “superior proposal.”
Last time Anbang submitted an offer for Starwood, Marriott immediately said that they planned on countering. Well, this morning Marriott has issued a press release reaffirming their commitment to purchase Starwood, though it seems like they don’t plan on countering. As a matter of fact, Marriott still thinks their offer is better:
Marriott International, Inc. (NASDAQ: MAR) today reaffirmed its commitment to acquire Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT), confident that the previously announced amended merger agreement is the best course for both companies. 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.
The press release goes on to talk about the great synergies between the two companies, and how they think the shareholders will vote in favor of the merger on April 8. As of now Starwood’s board of directors hasn’t yet changed its recommendation to merge with Marriott, so we’ll see what happens.
What’s interesting is that rather than calling into question the pricing of the deal between Starwood and Anbang, Marriott raises other doubts in regards to the Anbang takeover:
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.
Marriott basically seems to be acknowledging that Anbang’s offer is better in terms of price, but might be more complicated otherwise.
Bottom line
It’ll be really interesting to see how this plays out. While nothing is stated explicitly, reading between the lines it seems like Marriott won’t be raising their offer further, but rather this deal comes down to what Starwood’s Board of Directors thinks is the most compelling offer. On one hand it’s tough to argue with the certainy of an all cash offer, which is why Marriott is calling into doubt Anbang’s ability to close the deal.
This is very much still “developing,” and anything can happen. Here’s to hoping the deal with Anbang closes, and Marriott will at least get up to $468 million worth of breakup fees…
Given where things stand now, what are you hoping will happen (and what do you think will happen)?
Marriott is a very well run organization and the service levels are superior at all brands. Often they are exceptional even at mediocre locations. I am plat for life and happy with the rewards - and as mentioned above, hope Marriott is the winner but expect a diminution Of benefits. The biggest benefit of Marriott over Starwood is marriotts availability virtually anywhere you go; the combined company would offer even more choices. I think both...
Marriott is a very well run organization and the service levels are superior at all brands. Often they are exceptional even at mediocre locations. I am plat for life and happy with the rewards - and as mentioned above, hope Marriott is the winner but expect a diminution Of benefits. The biggest benefit of Marriott over Starwood is marriotts availability virtually anywhere you go; the combined company would offer even more choices. I think both sides would benefit from marriotts operational acumen plus combined brand creativity plus increased choice. I believe on balance win for Marriott will increase value fornstarwood as opposed to financial investor.
I would rather have an American company controlling Starwood. Once the company is in Chinese hands it will never be American again. Also stock can appreciate or depreciate, cash can be spent once and once only.
@Khatl
Or how many would Starwood gain having access to Marriott. As much as I like being a SPG loyalist, the fact is that Starwood had dismal financial growth and is not returning profits equivalent to its potential. On the other hand, Marriott provides very consistent service at multiple levels and is financially strong and had a savvy board. Hence Starwood is being purchased for just 14 billion...
So, my friends and family...
@Khatl
Or how many would Starwood gain having access to Marriott. As much as I like being a SPG loyalist, the fact is that Starwood had dismal financial growth and is not returning profits equivalent to its potential. On the other hand, Marriott provides very consistent service at multiple levels and is financially strong and had a savvy board. Hence Starwood is being purchased for just 14 billion...
So, my friends and family who travel and stay at Starwood properties frequently want the Marriott offer to come through. However, Marriott is right in not countering the highly overpriced Angbang offer. Disclaimer, since I'm also a Marriott lifetime plat and a SPG plat, I'm not too worried about the Marriott takeover since it will point to a financially stronger brand with good reputation.
@Larry -- Extremely well put!
@Ivan Y -- Right, I understand that's the prevailing view. My question is, why? I wouldn't think it's a very informed view, and the facts as we know them and the likely pressure Anbang will face makes it seem unlikely as a matter of common sense. It has to dramatically overpay for this asset given the punitive effect of Marriott's $.5B penalty right. Does any Chinese owned travel company have a decent loyalty program? Don't...
@Ivan Y -- Right, I understand that's the prevailing view. My question is, why? I wouldn't think it's a very informed view, and the facts as we know them and the likely pressure Anbang will face makes it seem unlikely as a matter of common sense. It has to dramatically overpay for this asset given the punitive effect of Marriott's $.5B penalty right. Does any Chinese owned travel company have a decent loyalty program? Don't know the answer -- just asking. My sense is that it is not something on which there is as much of a priority in the East as the West. I think this is simply a case of people who chose Starwood over Marriott because they prefer the former's loyalty program blindly assuming that this will be better for no reason other than they hope it will be. Hope really isn't a legitimate ground for the prevailing view. In the end, it really doesn't matter, because there's nothing you or I can do to change who acquires Starwood, but in this Internet game of what outcome to root for here, sometimes the known quantity is better than the unknown. I suppose the answer is that if Anbang screws up SPG, we can all switch to Marriott anyway, so we're no worse off. But I actually was kind of heartened to hear some of the quotes about plans for the combined company and while I would have preferred SPG stay exactly as it is, I doubt that will happen in the long term anyway, and I thought it might end up workable with Marriott. I guess time will tell. Unless Anbang has made some public comments about preserving SPG as is, I see little reason to be optimistic and many reasons to be other.
@Ivan Y -- How can that -- i.e. leave the reward program as-is compared to Marriott’s takeover -- possibly make business sense when Starwood "as is" is underperforming, with anemic growth compared to their competitors, which is why they are on the auction block in the first place?!
It is very myopic to view this M&A through its potential implications on the SPG loyalty program because that is just a minuscule part of a deal that is now up to some $14B!!!
@ Larry -- prevailing thinking has been that Anbang is more likely to leave the reward program as-is compared to Marriott's takeover.
I don't really understand why everyone assumes that Anbang is better for SPG than Marriott would be. What assurance does anyone have about Anbang's intentions? To get this deal done, Anbang had to pay at least $475 million more than Marriott's value of the company in order to overcome the break up fee. So you're all rooting for a new owner that comes in nearly $500 million in the red and probably with debt and...
I don't really understand why everyone assumes that Anbang is better for SPG than Marriott would be. What assurance does anyone have about Anbang's intentions? To get this deal done, Anbang had to pay at least $475 million more than Marriott's value of the company in order to overcome the break up fee. So you're all rooting for a new owner that comes in nearly $500 million in the red and probably with debt and you think that will be good for us? Seems borderline delusional.
- Is there a Starwood customer that wants this merger to happen? I've not met one
- Is there a Marriott customer that wants this merger to happen? All of them
If Starwood-Marriott happens, have the companies determined how many Starwood customer's they will lose?
@Eric-- First, it is premature to conclude that Marriott has been defeated when Starwood's board/stockholders won't vote until about a week from now. They may well decide that "synergy" and long-term viability may be worth more than short-term gratification [read: cash].
Second, those who are rooting for the Chinese seem to be judging Marriott as a company based on their loyalty program [which, BTW, consistently ranks higher than SPG in customer satisfaction in most...
@Eric-- First, it is premature to conclude that Marriott has been defeated when Starwood's board/stockholders won't vote until about a week from now. They may well decide that "synergy" and long-term viability may be worth more than short-term gratification [read: cash].
Second, those who are rooting for the Chinese seem to be judging Marriott as a company based on their loyalty program [which, BTW, consistently ranks higher than SPG in customer satisfaction in most reputable surveys] and that is plainly ridiculous. Marriott is a well-run company that has been profitable for years. Therefore, Starwood would be in much better hands with Marriott than with Anbang, which may just acquire Starwood, “bang” them around a bit and then walk away when profits do not materialize, like a rich spoiled brat who asks for a Lamborghini only to run it into a tree, abandons it and then asks for a B752!
In total agreement with Marriott. Angbang had done this in the past with external M&As, which have not been successful for the acquired entities. It's clear that the insurance firm is desperate about trying to increase its external cash flow and not interested in correct appraisal of Starwood. Overvaluation typically leads to leaning out to achieve quick ROI. In this merger a combination of share and cash may be more beneficial rather than just cash.
I hope this is an eye opener for Marriott that they need to do a better job of being more competitive with its Marriott Rewards program. Hopefully this loss for Marriott to Anbang opens up their eyes and they start losing market share. I hate it when companies get too cocky and just devalue their product.
In my first year as a junior investment banker, my managing director taught me a lesson: as a sell-side advisor, you always go for the higher offer. Not to mention one being all-cash. Oh synergies, only if most of them ever come true.
Good luck, Marriott.
Marriott has a point, M&A is not all about the highest offer in terms of $/share, but the best offer. That includes the likelihood of the deal closing as well as the ability to execute the deal and grow the business post-merger. Plenty of mergers failed to deliver the promised shareholder value. Marriott has operated a very successful business, whether you like their reward program or not, and is more likely to make a success...
Marriott has a point, M&A is not all about the highest offer in terms of $/share, but the best offer. That includes the likelihood of the deal closing as well as the ability to execute the deal and grow the business post-merger. Plenty of mergers failed to deliver the promised shareholder value. Marriott has operated a very successful business, whether you like their reward program or not, and is more likely to make a success out of the combined business than Anbang, which has a lot less track record in comparison!
And Starwood can certainly use the help: the Sheraton brand is in shambles, they missed the long-term stay trend and were late to the mid-scale segment...
CASH IS KING.
Marriott can counter this offer if they want to, but they are now seeing this deal for what it probably was from the beginning, a loser, and are ready to walk away if all Starwood sees is the green and not the golden future that the two companies' synergy could bring about. That's basically what this message from Marriott says.
Starwood was already a troubled company, which is why they put themselves up for...
Marriott can counter this offer if they want to, but they are now seeing this deal for what it probably was from the beginning, a loser, and are ready to walk away if all Starwood sees is the green and not the golden future that the two companies' synergy could bring about. That's basically what this message from Marriott says.
Starwood was already a troubled company, which is why they put themselves up for sale. Paying a lot of money for a company in trouble is risky business unless the buyer has or plans a fix, which Marriott clearly seemed to. If they are smart, Anbang would as well rather than to let Starwood continue on their current troubled path. To pursue Starwood with the level of intensity that they have Anbang must already have figured out their long game to get something out of this deal and it may not be what SPG loyalists who are cheering them on have in mind…
Be careful what you wish for…!
The cynist in me says the board will accept Marriott's offer even though it is inferior right now because they expect Marriott's stock to soar after it takes over Starwood, destroys SPG and Marriott Rewards, raises commisions for properties and lowers commissions for OTAs, fires all but the top few executives and buys back a ton of stock.
Try making a reservation using the Starwood discount code for your organization, then do the same with the one from Marriott. If you get a better deal from Marriott (that is if you are offerered any deal at all) then you are in the minority. Hands down, Marriott's discounts suck. It's by no means a certainty that Anbang will leave existing corporate codes alone but, with Marriott in charge, expect to kiss them goodbye. That...
Try making a reservation using the Starwood discount code for your organization, then do the same with the one from Marriott. If you get a better deal from Marriott (that is if you are offerered any deal at all) then you are in the minority. Hands down, Marriott's discounts suck. It's by no means a certainty that Anbang will leave existing corporate codes alone but, with Marriott in charge, expect to kiss them goodbye. That alone is a big reason for business travelers to hope the merger with Marriott never ever happens.
Better get this done before someone is appointed or elected that understands antitrust. The clintons and trump do not collect miles last i checked.
My wife use to work for Marriott. Been there done that for way too long. I would rather have the cash in pocket rather than more Marriott shares, plus l don't want to loose the SPG program.
Yes, it's a better deal because Marriott is such a superior brand, lol. Delusional much?
Well, Marriott does not have the $ to counter offer and is now trying to undermine the Anbang's offer to Starwood shareholders. They should congratulate Anbang for winning the bid war. Marriott should understand that it is all about money and not come with this complete BS that even by offering a lower price they are a better fit, bla, bla, bla.....
Sounds like Marriott may be throwing in the towel.