Reuters Insider - China Group Bid for Starwood Threatens Marriott Tie-Up

Hotel Properties

15/03/2016 03:21

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 Source:             Thomson Reuters                                   
                                                                       
 Description:        Starwood Hotels and Resorts is the subject of a   
                     $12.8 billion takeover bid from a Chinese         
                     investment firm. The bid could derail an existing 
                     planned merger with rival hotel chain Marriott.   
                     WSJ's Heard on the Street columnist Alex Frangos  
                     discusses ...                                     
 
 
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Transcript (May be auto-generated)

                 Starwood Hotels and Resorts is the subject of a $12.8 billion takeover bid this 
morning from a Chinese investment firm. The bid could derail another merger. In 
November, Marriott International agreed to acquire Starwood with a stock and 
cash offer that's now worth $11 billion. The combination of Starwood and 
Marriott would have created the number one hotel chain with over one million 
rooms globally, but now that deal is under pressure. Here with analysis is 
"Heard on the Street" Columnist Alex Frangos. Alex, thanks so much for being 
with us. What other details can you tell us about this new bid? Well, I think 
the important thing is it's much higher than the Marriott bid. It's all cash, so
investors are going to be very interested. Starwood stock is up quite a bit this
morning on excitement about this, and the board of Starwood is going to have do 
some really hard thinking over the next four or five days while they consider 
the bid. And how far has the agreement progressed with Marriott? Very far, I 
mean they already had regulatory approval in a number of jurisdictions and it 
was expected to close sometime in the middle half of this year, so they're very 
far along. And you know I think investors at this point thought that this was 
the deal that was going to be happen. They had been bidding last year in the 
sales process presumably we had reported at the time that Anbang, this Chinese 
investment company, had been involved and had maybe made a bid, but didn't, you 
know, didn't follow through so this is- Did Starwood have to ask Marriott for 
permission just to get- enter into talks? Well, I mean so there's a little bit 
of a formality, but yes, they were granted permission to pursue this, but 
that's, you know, partially just to kind of get things going. I mean they have 
an obligation to shareholders to even- you know, when things come in over the 
transaction this late and the process to consider that. Of course, would 
Marriott just let them go free and clear or would they owe something to Marriott
if they took- Yes, they owe them quite a bit. And there's a breakup fee of $400 
million which is a pretty big chunk of change, and I would note that Marriott 
stock was actually up this morning which you wouldn't expect when, you know, 
when it seems clear that they may be entering a bidding war. Shareholders 
wouldn't want them spending too much money. Right. But shareholders might be 
hoping that they lose. I was going to say: does that indicate that maybe 
Marriott and Marriott shareholders are sort of relieved that they don't- 
wouldn't- might not have to make this huge purchase? Yes, I think there might be
the case. There are a lot of integration risks. Although, you know frankly I 
think a combination these two companies would make Marriott a very, you know, 
important hotel company to be - a million hotel rooms, 300,000 hotel rooms 
bigger than any of their competitors. That's an economy of scale that they can 
spread out across their- you know, network and reservation systems. Absolutely. 
And what do we know about this Chinese investment firm, Anbang, and what their 
plan might be for Starwood? We don't know a heck of a lot. It's a listed 
company. 

They do have an insurance company. They also do a lot of asset management. 
They've been very, very aggressive. They did this deal over the weekend that we 
reported about to buy strategic hotels from Blackstone who has just bought it 
six months ago. They're just flipping it. They're very aggressive. They bought 
the Waldorf Astoria, as you remember, a couple of years ago. They paid a very, 
very high price. They seem to be kind of insensitive to price- Interesting. 
-which is probably very frustrating for the likes of Marriott and other hotel 
investors who don't want to be paying too much and- And is this part of a larger
trend that you've seen of Chinese companies grapping up hotel chains 
particularly? Well, I mean Anbang itself has very aggressive in buying hotel 
properties. But there's just been a ton of cash coming out of China for all 
sorts of things. We saw the Syngenta deal which is this big, you know, chemicals
and fertilizer and seeds company. You know just all over the place, Chinese 
companies are being very aggressive getting their money out. And Starwood is a 
considered a prestigious holding, right? It has the W Hotels chain, the St. 
Regis, correct? Yes, I mean it's considered, you know, it has a lot of cache 
especially in that luxury and you know, near luxury segment. They've actually 
been very aggressive in building hotels in China. So, I think that a Chinese 
buyer sees Starwood as these are brands that Chinese consumers recognize, that 
they can leverage in China but also as Chinese- as we see, you know, have been 
traveling abroad, you know, they want to be the first stop. You know if a 
Chinese person is coming to New York for a vacation, they want them going to 
Starwood and they recognize that brand, recognize the W or the Westin, whatever 
it is. That global reach for sure. Now, how long do you Starwood shareholders 
have to make a decision here? Well, I think they're going to be- they have until
sort of the end of the week for the board to consider this offer and then we'll 
see what they do, whether they're still recommending the Marriott proposal. That
hasn't changed. But if that does change then Marriott will have an opportunity 
to make a counter bid. So this could go on for a little while. This will be a 
really fun story. I think people will be really interested since so many people 
do stay in these hotels. Absolutely. Things are moving quickly. Alex, we'll keep
up with you on that one. Thank you so much