Marriott options: Go bigger—or go elsewhere

Starwood Marriott

Months of work by Marriott International leaders may all be for nothing if Starwood Hotels & Resorts Worldwide is acquired by a consortium led by Chinese insurance company Anbang. So what can Marriott do now? 

As Bloomberg notes, Marriott has several options: It can let Anbang take Starwood; it can offer a price greater than the $14 billion currently on the table (which, the site notes, is "financially risky"); or it can find a way to make a more-expensive acquisition work, possibly through property sales.

In a statement made upon the announcement of Anbang's increased bid, Marriott reaffirmed its commitment to acquire Starwood, claiming it was "confident that the previously announced amended merger agreement is the best course for both companies. 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, substantial revenue synergies, and improved economics to owners and franchisees leading to accelerated global growth and continued strong returns."

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The combination of Marriott and Starwood would create the largest hotel company in the world, with an estimated 5,700 properties and 1.1 million rooms. Anbang, meanwhile, is fairly new to the hospitality business, and money cannot compensate for experience, expertise and professional connections. Starwood’s board of directors has still not changed its recommendation in support of Starwood’s merger with Marriott.

To accomplish that, Marriott would have to come up with an offer better than Anbang's $14 billion all-cash bid. Marriott's most recent offer for Starwood reached $13.2 billion in stocks and cash, based on Monday’s closing price. While this may be possible, the risks may outweigh the potential benefits, as analysts are noting. 

If the deal doesn't go through, Marriott will collect a breakup fee of $450 million—no small amount of change, but enough to make some substantial alternative purchases to boost the company's portfolio. 

As another Bloomberg story notes, whoever loses the battle for Starwood might have better luck taking their funds to Europe and expanding there through mergers and acquisitions. 

"M&A makes sense for existing players as a way of dealing with revenue pressure and the increasing threat from disruptive entrants like Airbnb, as well the drift to online booking through intermediaries that are demanding an increasing slice of the revenue pie," the story notes. 

Since early February, the report notes, European hotel companies like InterContinental Hotels Group, AccorHotels, NH Hotel and Melia Hotels have outperformed their domestic equity indices. This has left investors questioning whether the de-rating suffered by the sector last year had gone too far. 

IHG may be the most attractive due to its scale and global presence—and the fact that no one shareholder has a big enough holding to block an advance, according to the story. On the flip side, its shares have increased 27 percent from early February alone, and now trade on a forward earnings multiple of 20. Based on Bloomberg data, the increase is only a 2-percent premium to the European sector. 

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