Marriott back in driver's seat after Starwood accepts higher bid

Marriott

The face-off between Marriott International and Anbang Insurance Group is like a heavyweight prizefight: round by round we have a new winner on the scorecard. In this most recent round, the victor is Marriott, and the prize: Starwood Hotels & Resorts Worldwide.

After Starwood announced late last week that it would accept Anbang's higher bid, today, it is back with Marriott after the company upped its bid to $13.6-billion.

That $13.6 billion breaks down to $10 billion of Marriott International stock and $3.6 billion in cash, based on approximately 170 million outstanding Starwood shares. After completion of the merger, Starwood shareholders will own approximately 34 percent of the combined company’s common stock, based on current shares outstanding.

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Beyond those numbers, Starwood stockholders are expected to receive separate consideration in the form of Interval Leisure Group common stock from the spin-off of the Starwood timeshare business and subsequent merger with ILG, currently valued at $5.83 per Starwood share, based on ILG’s share price as of market close on March 18. 

In connection with the amended merger agreement, Starwood’s Board of Directors has determined that the offer from the Consortium consisting of Anbang Insurance Group Co., J.C. Flowers & Co. and Primavera Capital Limited to acquire all of the outstanding shares of common stock of Starwood for $78 per share in cash no longer constitutes a “Superior Proposal.” (The Consortium’s proposal, together with the ILG transaction, have a combined current value of $83.83 per Starwood share.) As such, under the merger agreement Starwood is no longer permitted to engage in discussions or negotiations with, or provide confidential information to, the Consortium. Starwood’s Board unanimously recommends the amended merger agreement with Marriott to Starwood’s stockholders.

Both companies expect the closing of the transaction will occur well before the planned date of the Marriott-Starwood merger closing.  The amended agreement and the ILG transaction have a combined current value of $85.36 per share of Starwood common stock.

Marriott now believes that it can achieve $250 million in annual cost synergies within two years after closing, up from $200 million estimated in November 2015 when announcing the original merger agreement.

Marriott and Starwood have already obtained important regulatory consents necessary to complete the transaction, including clearing pre-merger antitrust reviews in the United States and Canada. 

“We are pleased that Marriott has recognized the value that Starwood brings to this merger and enhanced the consideration being paid to Starwood shareholders," Bruce Duncan, chairman of the board of directors of Starwood Hotels & Resorts Worldwide, said in a statement. “Marriott’s revised offer provides the highest value to our shareholders through long-term upside potential from shared synergies and ownership in one of the world’s most respected companies, as well as significant upfront cash consideration. With its asset-light business model, multi-year industry leading unit growth, powerful brands, and consistent return of capital to shareholders, Marriott stock has consistently traded at valuation premiums to its public peers.”  

“We expect to accelerate the growth of Starwood’s brands, leveraging Marriott’s worldwide hotel development organization and owner and franchisee relationships," Arne Sorenson, president and CEO of Marriott International, added. "On the top line, combined sales expertise and increased account coverage should drive additional customer loyalty and increase revenue. Hotel level cost savings should benefit owners and franchisees, including better efficiencies in reservations, procurement and shared services.” 

Marriott expects the transaction to be roughly neutral to adjusted earnings per share in 2017 and 2018.

One-time transaction costs for the merger are expected to total approximately $100 million to $130 million. Transition costs are also expected to be incurred over the next two years. 

The transaction is subject to Marriott International and Starwood Hotels & Resorts Worldwide stockholder approvals, completion of Starwood’s planned disposition of its timeshare business, obtaining remaining regulatory approvals and the satisfaction of other customary closing conditions.

Marriott and Starwood have each agreed to convene its respective stockholder meeting to consider the transactions contemplated by the amended merger agreement on March 28, and to immediately adjourn such meeting until April 8.  Assuming receipt of the necessary approvals, the parties continue to expect the transaction to close in mid-2016.  The break-up fee payable by Starwood in certain circumstances increased to $450 million from $400 million.  In circumstances in which the termination fee is payable, Starwood would also be required to reimburse Marriott for up to $18 million of actual costs incurred by Marriott in connection with the financing of the transaction.

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