Big news this morning! Starwood Hotels & Resorts has announced a competing offer from an anonymous dark horse bidder. Starwood and Marriott had announced the intent to merge based on Marriott’s offer for the company late last year.
However, at that time, analysts had mentioned that there still might be another offer. The stock market, to some degree, was pricing in this possibility and I believed it was a consideration as well. As time went on, it seemed less likely. With the Starwood shareholder vote only a couple weeks away, Starwood issued a press release just now stating that they had informed Marriott of the competing offer and received permission from them to explore further. Quoting from the press release:
As announced on November 16, 2015, Starwood entered into a definitive merger agreement with Marriott International, Inc. (NASDAQ: MAR) (“Marriott”) under which Marriott would acquire Starwood in a stock and cash transaction. Starwood has received a waiver from Marriott enabling it to engage in discussions with, and provide diligence information to, the Consortium in connection with its proposal. Starwood commenced discussions with the Consortium on March 11, 2016. The Marriott waiver expires at 11:59 pm Eastern Time on March 17, 2016.
The offer appears to be all cash at a price of $76 a share. That compares very favorably with Marriott’s offer:
Under the terms of the merger agreement with Marriott, at closing, Starwood stockholders would receive 0.92 shares of Marriott International, Inc. Class A common stock and $2.00 in cash for each share of Starwood common stock. The total consideration to be paid by Marriott, excluding debt assumed, totals $10.8 billion, consisting of $10.5 billion of Marriott common stock, based on the 20-day VWAP of Marriott common stock ending on March 11, 2016, and $339 million of cash, based on approximately 170 million fully diluted Starwood shares outstanding at February 19, 2016. Based on Marriott’s 20-day VWAP ending March 11, 2016, the merger transaction has a current value of $63.74 per Starwood share, including the $2.00 cash per share consideration. Starwood stockholders will separately receive consideration from the spin-off of the Starwood timeshare business and subsequent merger with ILG of approximately $5.50 per Starwood share, based on the 20-day VWAP of ILG common stock ending March 11, 2016.
The Final Two Pennies (For Now)
I’ll have more to offer later in the day, but this is pretty big news. Starwood Hotels appears to be back in play, even though the press release says that the board of directors at Starwood prefers the Marriott offer. They’ve got a few days to explore this, which means there’s still a chance SPG could remain a standalone loyalty program, as opposed to a combination with Marriott that I don’t think benefits SPG members.