Marriott deal for Starwood hits speed bump after Anbang bid

Currency

Not so fast, my friends.

China's Anbang Insurance Group's initial foray into the U.S. hospitality industry is proving no fluke, as the group, which made its debut in October 2014 when it acquired the Waldorf Astoria in New York from Hilton, in just a week's span, is reportedly acquiring real estate investment trust Strategic from Blackstone for $6.5 billion, and just this morning comes word that it is making a play for Starwood Hotels & Resorts Worldwide, which late last year agreed to be acquired by Marriott International.

Outbidding Marriott
Two weeks ahead of the shareholders meeting that will finalize Marriott International's acquisition of Starwood Hotels & Resorts, a consortium led by Anbang announced a bid of nearly $13 billion for Starwood. The unsolicited all-cash bid would be worth $76 a share, an increase over the offer made by Marriott in November, which reached $63.74 per share.

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The other parties to the consortium reportedly are J C Flowers and China’s Primavera Capital Group. The former is a private investment firm, with offices in New York and London, and currently investing capital from its third fund with total capital commitments of over $2 billion. Primavera is a China-based investment firm, focusing on private equity and special situations opportunities.

A Baird equity research note this morning writes: "We believe that Anbang is interested in Starwood’s owned hotels, and that one of the other consortium members could control the brand."

CNBC's resident stock guru Jim Cramer likes the deal.

The deal with Marriott, meanwhile, would have provided Starwood stockholders with .92 shares of Marriott International Class A common stock and $2.00 in cash for each share of Starwood common stock. Excluding debt assumed, Marriott was expected to pay a total of $10.8 billion for Starwood. 

In a statement, Starwood said that it has received a waiver from Marriott allowing discussions with the consortium in connection with the proposal. The waiver expires at 11:59 pm Eastern Time on March 17.

Marriott, meanwhile, released a statement reaffirming its commitment to acquire Starwood. "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, improved economics to owners and franchisees leading to accelerated global growth and continued strong returns," the statement said. 

In considering the Anbang bid, Starwood management and shareholders would also need to consider the cost of breaking the agreement with Marriott. Under the terms of the merger agreement, if Starwood terminates its agreement with Marriott to enter into another deal or should Starwood change or withdraw its recommendation to its stockholders to vote in favor of the Marriott merger, Starwood would be obligated to pay Marriott a $400 million cash termination fee. So far, Starwood’s Board of Directors has not changed its recommendation in support of the Marriott merger, but has said that it will "carefully consider the outcome of its discussions with the Consortium."

Strategic, Too
Meanwhile, just three months after acquiring Strategic Hotels & Resorts, New York-based private equity firm Blackstone Group has agreed to sell the REIT to Anbang.

According to CNBC, the deal is worth $6.5 billion, a significant step up from the $3.93 billion Blackstone paid in December.

Buying Strategic Hotels would boost Anbang's luxury hotel portfolio in a single step, the site noted. Currently, Strategic's portfolio includes 16 properties with 7,532 rooms. Among the properties are Ritz-Carlton locations in California, the Fairmont Scottsdale in Arizona, and the Four Seasons Resort in Jackson Hole, Wyo.

Anbang has, so far, focused on acquiring high-value sungle assets in the U.S., most notably New York's Waldorf Astoria for $1.95 billion from Hilton—which was majority-owned by Blackstone at the time. 

This expansion is part of a long-growing trend of Chinese real estate deals in western markets. Transaction volumes reached $30 billion in 2015—double the amount seen in 2014, according to property consultancy firm Knight Frank’s latest research. This can be credited to the weakening power of China's currency and better values found in western real estate.

Sources: Bloomberg, CNBC, Financial Times

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