Star­wood might pull out of Mar­riott deal as Chi­nese ups its of­fer

The Pak Banker - - COMPANIES/BOSS -

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.

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