TRAVEL: CIC, Jin Jiang Eye Hotel Giant Starwood

Bottom line: A Chinese buyer could have a strong chance of winning the bidding for US hotel operator Starwood, with CIC most likely to emerge as Beijing’s preferred candidate among a trio of interested local buyers.

Chinese buyers eye Starwood Hotels

Just a day after China’s 2 leading travel sites put aside their bitter rivalry and formed a major new alliance, we’re getting word of yet another major deal in the hot tourism sector. This time media are saying 3 Chinese buyers are eyeing Starwood (NYSE: HOT), one of the world’s top hotel operators. The 3 potential bidders include 2 of China’s leading private equity investors, China Investment Corp (CIC) and HNA Group. The third is one of China’s top hotel operators, Jin Jiang (HKEx: 2006; Shanghai: 600574), which has been on a buying spree recently both at home and abroad.

If one of the 3 succeeds, the deal would mark the largest purchase ever of an offshore asset by a Chinese buyer, based on Starwood’s latest market value of $15 billion. Word of the deal comes just a day after leading domestic online travel agents Ctrip (Nasdaq: CTRP) and Qunar (Nasdaq: QUNR) buried the hatchet in their bloody battle for share in China’s fast-growing travel market. A Starwood deal would also come less than a week after US-British cruise operator Carnival (NYSE: CCL) formed a new joint venture with 2 Chinese partners. (Chinese article)

This new activity is just the latest in a frenzy of moves by Chinese and foreign firms to cash in on China’s booming travel market. The trend has seen Chinese become some of the world’s biggest tourists, both at home abroad. And while many of those tourists may be careful spenders normally, they have also shown a tendency to spend far more freely on hotels and shopping when they travel on vacation.

As a longtime follower of the hotel industry, I can say with certainty that a sale of Starwood would mark a major milestone for China’s outbound investment in terms of high profile purchases. Starwood operates a wide range of hotels, including the older Westin and Sheraton brands, as well as the trendier new W hotels. Starwood is also one of the top 3 US operators, behind leading companies Marriott (NYSE: MAR) and Hilton (NYSE: HLT).

Applying to Beijing

According to the latest reports, Starwood is still considering whether or not it wants to sell itself, and has attracted interest from not only China but other global buyers. (English article) The 3 Chinese bidders have all submitted proposals to Beijing, a necessary step before they can formally enter the bidding process, according to the reports. Beijing is expected to choose one bidder over the next few weeks, as it doesn’t want to drive up the price by having multiple Chinese companies bidding against each other.

That means that CIC probably stands the best chance of being picked as Beijing’s preferred candidate, since it is China’s sovereign wealth fund and has close ties with the central government. Jin Jiang is much better connected in its hometown of Shanghai, which won’t help it much in this instance. HNA is based in southern Hainan province and doesn’t have extremely close ties with Beijing.

A CIC bid might also be less controversial, since the company is a financial investor and thus would be less likely to draw political opposition that Jin Jiang might attract. Of course it’s far from certain that a Chinese bidder would win, though Chinese companies have been aggressive bidders recently for major global hotel assets. Jin Jiang has helped to lead that charge with its $1.5 billion purchase of Europe’s Louvre Hotels last year, and insurance company Anbang also made headlines with its $2 billion purchase of New York’s legendary Waldorf Astoria earlier this year.

In this case I would give the Chinese bidder a strong chance of success if and when Starwood decides to put itself up for sale. That’s because the Chinese have been quite aggressive buyers in both the global hotel and property markets lately. In this case a Chinese buyer would also be likely to use its connections to boost Starwood’s presence in China, similar to what local private equity giant Fosun (HKEx: 656) is now trying to do following its own recent tie-up with French resort operator Club Med (Paris: CU).

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