LEISURE: Uncertain Starwood Leaves Anbang Sweating

Bottom line: Anbang’s hiring of a consultant to gauge shareholder interest in its bid for Starwood indicates a lack of confidence in reaching a deal with Starwood’s management, and shows its offer is ultimately likely to fail.

Starwood preparing to reject Anbang?

Chinese insurer Anbang is quickly learning that money can’t buy you everything, following its surprise mega-bid for US hotel giant Starwood (NYSE: HOT), operator of the Sheraton and Westin brands. That’s my latest interpretation, following reports that Anbang has hired a professional proxy solicitor to gauge investor sentiment towards its $12.8 billion bid for Starwood that trumped a previous offer by US hotel giant Marriott (NYSE: MAR).

I said earlier this week that Starwood’s board and management were ultimately likely to reject the Anbang bid, and opt for a union with a partner like Marriott that could ensure its longer-term future. (previous post) This latest move implies that Anbang may be getting a cool reception from Starwood’s management, and is testing the waters to potentially take its bid directly to Starwood’s shareholders in what would become a hostile takeover bid.

The latest headlines don’t offer too much detail, and simply say that Anbang has hired an unnamed proxy solicitation firm to gauge how investors view its surprise bid for Starwood that was disclosed earlier this week. (English article) Anbang offered $76 in cash for each Starwood share, which is about 12 percent higher than the current value of Mariott’s November offer that included both cash and stock.

Marriott has agreed to a waiver that allows Starwood to explore a separate deal with Anbang. The Chinese insurer made headlines last year with its landmark purchase of the Waldorf Astoria hotel in New York for $2 billion. Its appetite for western hotels was in a separate headline earlier this week, when reports revealed it was in talks to pay $6.5 billion for a portfolio of luxury hotels held by Strategic Hotels & Resorts. (previous post)

All that said, let’s return to the latest headlines and try to determine what they reveal about what may be happening behind the scenes of this bidding war between Anbang and Marriott. Anbang’s hiring of the proxy solicitor shows it’s probably meeting some resistance from Starwood management, and Marriott’s agreement to the waiver adds to that impression.

Sign of Confidence

After all, Marriott could have simply refused to allow the waiver and tried to force Starwood to reject the Anbang advance. So the fact that Marriott agreed implies it was confident that it would ultimately be chosen as the most logical mate for Starwood. That’s not too difficult to understand, since Marriott is one of the world’s best-run hotel companies, and could help to breathe new life into Starwood’s more lackluster operations.

By comparison, Anbang is an unfamiliar Chinese company with little or no experience running major hotel brands. Thus at best, Anbang would simply buy Starwood and leave its operations unchanged, meaning the company would continue its current slow decline. At worst, Anbang might actually try to become more actively involved in Starwood’s operations, which could be disastrous due to the Chinese insurer’s lack of experience in such a competitive global market.

While Starwood’s managers may be tepid about a sale to Anbang, it’s less clear what actual shareholders might think. After all, Anbang’s $76 per share offer is all cash, whereas Marriott’s $67.79 offer is not only lower but comes in both cash and stock. Thus if I’m a shareholder who’s just interested in making some quick profits, I could certainly decide that Anbang is offering a better deal.

Against that backdrop, the central question could become whether Anbang is prepared to launch a hostile bid if it ultimately gets rejected by Starwood management. I suspect the answer is that it won’t consider such a route, which is often long, complex and costly, and has no guarantee of success. Accordingly, I stand by my earlier prediction that Starwood will ultimately go through with its earlier plan to get bought by Marriott, and that Anbang is likely to drop its bid within the next few weeks.


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