Starwood might pull out of Marriott deal as Chinese ups its offer
Competition for Starwood Hotels and Resorts ratcheted up Friday after China's Anbang Insurance Group upped its takeover offer, prompting Starwood to announce plans to pull out of a $12.2 billion deal with Marriott International.
Anbang, which is leading a consortium of investors, is now offering to pay $13.2 billion, or $78 per share, in cash for the Stamford, Conn.-based hotelier. Earlier, the group had offered $12.8 billion, or $76 per share.
Starwood said its board of directors considered Anbang's offer "a superior proposal" to Marriott's, potentially kicking off a bidding war between the Chinese company and Marriott, the Bethesda-based hotel behemoth.
Marriott has until March 28 to submit a counter-offer. Marriott said Friday it is reviewing Anbang's proposal and is "carefully considering its alternatives." Anbang, which two years ago purchased the Waldorf Astoria New York hotel for $1.95 billion from Hilton Worldwide, has aggressively expanded in recent years, buying up insurance firms and banks in Belgium, South Korea, the Netherlands and the United States. In Starwood, Anbang would acquire brands like Sheraton, Westin, and St. Regis.
Chinese investors have begun buying up billions of dollars of U.S. real estate amid worries about an economic slowdown in the world's second-largest economy. In April, the Chinese government lifted a number of restrictions on foreign investments in a move meant to encourage companies to invest overseas, particularly in the service sector as the country looks beyond manufacturing for growth.
Already this year, Chinese companies have announced plans to buy 153 foreign companies worth $103 billion, according to Dealogic, a data research firm in New York. If Anbang's purchase of Starwood goes through, it would mark the largest purchase of a U.S. company by a Chinese firm.
"The increased aggressiveness is certainly reflective of the government's policy," said Eswar Prasad, a professor at Cornell University and former head of the International Monetary Fund's China division. "And with the Chinese economy weakening somewhat, there is a very strong incentive for these corporations to use cash to make investments abroad."
The benefits of buying up large hotel chains for a company like Anbang are two-fold, Prasad said: "It allows them to expand their presence abroad but also start incorporating the practices of those multinational chains in their own domestic markets."
Anbang's consortium also includes two private equity firms: Primavera Capital Group, which is based in Beijing, and J.C. Flowers & Co. in New York.Anbang is typical of a new wave of companies with a new generation of chief executives using a strong, fast-growing base in China to expand abroad. As a seller of individual as well as commercial insurance, Anbang has reaped the benefits of a rapidly growing middle class that needs car insurance to go along with its new cars, health and life insurance to plug holes in China's porous safety net, and home insurance to cover potential problems in the rapidly expanding housing market. The company started only a dozen years ago with a branch in Beijing, a capital base of about $60 million and a focus on car and property insurance.
Born in the economically vigorous town of Wenzhou, Anbang's chief executive Wu Xiaohui married a granddaughter of China's longtime leader Deng Xiaoping. But more importantly he has grown up in the era of Deng's economic reform and opening up, after the end of the politically divisive Cultural Revolution. A person familiar with him says that Wu is a dynamic and energetic leader, an entrepreneur in the mold of other Chinese success stories like Jack Ma or Robin Li.
"The old generation was very conservative, more like government bureaucrats," said this person, who spoke on the condition of anonymity to protect business relationships.Yet Wu has also taken advantage of China's more traditional enterprises, which have invested in the privately held company.The person familiar with Anbang said that the Chinese firm's offer for Starwood was a better one for Starwood because one of Marriott's main rationales for the merger is to save money through layoffs and eliminating redundancies. Anbang would not do that, and could ease the way for Starwood expansion into China.
If Starwood decides to end its agreement with Marriott, Starwood would have to pay a $400 million termination fee in cash, according to Marriott.Shareholders of Marriott and Starwood were set to vote separately on the deal March 28. Starwood said it is postponing its vote, and Marriott said it is considering doing the same.