In game of one upmanship, Anbang hits back at Marriott for Starwood rights

Marriott

The bidding war for the rights to Starwood Hotels & Resorts Worldwide continues.

After Marriott International jumped back into the driver's seat for the rights to acquire Starwood Hotels & Resorts Worldwide, an unrelenting consortium led by Anbang Insurance Group is, once again, back behind the wheel.

According to media outlets, the consortium, which also includes J.C. Flowers & Co. and Primavera Capital Limited, raised its offer for Starwood to almost $14 billion.

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This morning, Starwood's Board of Directors determined that the revised proposal is "reasonably likely" to lead to a “superior proposal” as defined in Starwood’s merger agreement with Marriott International.

This puts the ball back in Marriott's court once again. 

The planned stockholder's meeting to finalize the merger—scheduled for today—will likely be postponed until late next week. 

Marriott v. Anbang
Today was supposed to be the shareholders meeting that would finalize Marriott's acquisition of Starwood. The deal had been struck in mid-November, and everything had been going smoothly until just two weeks ago, when the Anbang-led consortium announced a bid of nearly $13 billion for Starwood. The unsolicited all-cash bid was worth $76 a share, an increase over the offer made by Marriott in November ($63.74 per share), forcing the Board to consider the offer. 

After a week of consideration, Starwood opted to go with Anbang, and announced plans to to terminate the Marriott merger agreement and enter into a definitive agreement with the Consortium. 

Over the following weekend, Marriott upped its bid to $13.6-billion, and Starwood accepted the offer. For a week, all was quiet, and the deal seemed to be back on track, until this morning.

But on Saturday, Starwood received another non-binding proposal from the consortium, offering $82.75 a share in cash, or about $14 billion. That compares with Marriott’s stock-and-cash offer valued at $75.91 a share, or about $12.8 billion, based on Thursday’s closing price, Bloomberg notes. 

Starwood’s Board 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 reportedly discussing 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.

What Comes Next?
"There can be no assurance that discussions will result in a binding proposal from the consortium, that the Starwood Board will determine that any such proposal is a 'Superior Proposal' or that a transaction with the Consortium will be approved or consummated on any particular terms or at all," Starwood said in a statement.

Starwood intends to convene its scheduled stockholder meeting to consider the merger with Marriott today and immediately adjourn the meeting until April 8. 

Should Starwood ultimately accept the Anbang-led deal, Starwood would be required to pay to Marriott an increased termination fee of $450 million and be required to reimburse Marriott for up to $18 million of actual costs incurred by Marriott.

Will Marriott Walk Away?
According to some, it should.

This note from financial services firm Robert W. Baird Co.: "Marriott's options appear limited. We believe a key risk to Marriott’s merger assumptions is its ability to secure attractively priced debt financing, and the low assumed interest rate on the ~$3.56 billion of to-be-issued debt is the main driver of Marriott's expectation that its revised proposal will have a neutral impact to 2017 and 2018 EPS; the use of longer-term, more permanent debt financing would negatively impact Marriott's accretion/dilution assumption, in our opinion. We believe this higher leverage level implied by Marriott's current proposal will limit its willingness to meaningfully increase the cash component consideration if the consortium's proposal becomes binding. Overall, we expect Marriott to remain disciplined, and we believe the $450 million termination fee makes Marriott much more indifferent between acquiring Starwood and walking away if the consortium's $82.75/share becomes binding."

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