Not terribly surprising, but Starwood Hotels has received a new offer from Chinese insurer Anbang. It’s an all cash offer, with a new price of $82.75 per share. Quoting from the press release:
On March 26, 2016, Starwood received a non-binding proposal from the Consortium, under which the Consortium would acquire all of the outstanding shares of Starwood common stock for $81.00 per share in cash. Starwood’s Board, in consultation with its legal and financial advisors, determined that this proposal is reasonably likely to lead to a “Superior Proposal,” allowing Starwood 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 26, 2016 and, in those discussions, the Consortium made a revised proposal with an increased purchase price of $82.75 in cash per share of Starwood common stock. Starwood and the Consortium are continuing to discuss non-price terms related to the Consortium’s revised proposal, and are working to finalize the other terms of a binding proposal from the Consortium, including definitive documentation.
So, the new proposal came in on Saturday and initial discussions lead to a 2% increase in the proposal. That should value the new bid at roughly $14 billion.
It’s crazy to think that this thing isn’t over yet, but it’s not. It’s obviously less likely that Marriott makes another bid, and the stock market seems to think that’s the case. At last check, Marriott’s shares were trading up instead of down, meaning that the folks that make predictions for a living think it’s better if Marriott doesn’t buy Starwood.
But, mergers of equals where there are “synergies” are often viewed more favorably than an all-cash offer of equal value. Given that there’s still a significant break-up fee to pay ($450 million) from Marriott’s last offer, Marriott likely wouldn’t have to raise their offer much more to be seen as superior to Anbang’s, and certainly wouldn’t have to offer more today than Anbang (given those synergies and the break-up fee).
All that being said, it’s likely Anbang still has dry powder. I found an interesting Skift article that details the timeline of the Starwood-Anbang talks. If the article is correct, Anbang already offered over $80 per share for the company, though it’s unclear if that included the spin-off of the timeshare business or not. That means the spread on that offer is somewhere between $83 and $88 a share. Both numbers are above Anbang’s current offer.
Be Careful What You Wish For
Members of Starwood Preferred Guest are dancing on their desk this morning with this latest offer. I’m one of those loyal elites, just a handful of stays away from lifetime Platinum status with SPG. I should be rejoicing, especially knowing how much better SPG Platinum is than Marriott’s version. There’s no guarantee that Marriott will even honor lifetime SPG status, though I view it as highly likely.
A takeover offer from Anbang likely protects the SPG loyalty program, mostly in its entirety. But, there’s a reason that SPG put themselves up for sale. To some degree, shareholders weren’t happy with the direction of the company. Starwood carries more corporate employees than their competitors in a relative sense (they’re significantly smaller in total hotels than Hilton, Marriott and IHG while bigger than Hyatt). That means more cost, more corporate bloat. For them to be truly successful as an independent entity, some of that bloat probably needs to go.
There are also rumors that Anbang isn’t quite as hands-off as some might think, just interested in buying Starwood to diversify out of the Yuan. Combine these two tidbits and it’s possible that tomorrow’s SPG may look more like Marriott Rewards anyway, though without the additional 4,000 hotels.
More waiting and hand-wringing will ensue on the part of many now that Anbang has submitted this latest offer. Starwood employees aren’t really sure about their future. Some were likely happy about the merger with Marriott where others probably feared for their jobs.
SPG loyalty members are nervous to find out if their status will be worth anything in a post-merger world with Marriott. Both SPG and Marriott Rewards members are wondering if they’re going to have access to more properties for award redemptions if the merger closes.
Meanwhile, lots of folks are saying that a winning bid from Anbang means “business as usual”.
All we know today is that it’s business as usual, in some weird world where nobody’s quite sure what SPG will look like 18 months from now.
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