Mar­riott faces prospect of los­ing Star­wood af­ter months of work

The Pak Banker - - COMPANIES/BOSS -

Mar­riott In­ter­na­tional Inc. is fac­ing the prospect that four months of work to­ward com­plet­ing a pur­chase of Star­wood Ho­tels & Re­sorts World­wide Inc. is about to come un­done.

Star­wood re­ceived a takeover of­fer of $82.75 a share, or $14 bil­lion, from a group led by China's An­bang In­surance Group Co. That's higher than Mar­riott's last bid, rais­ing the stakes for the lodg­ing com­pany to counter a sec­ond time to save a merger that would cre­ate the world's big­gest ho­tel op­er­a­tor. Mar­riott has planned on the ac­qui­si­tion since Novem­ber, when Star­wood first agreed to be bought by its larger ri­val in a cash-and-stock deal.

"The time and en­ergy

they've in­vested is not some­thing they're go­ing to hap­pily walk away from," said Tom Baker, cor­po­rate manag­ing di­rec­tor at com­mer­cial real estate ser­vices firm Sav­ills Stud­ley. "It's just a ques­tion of can they jus­tify pay­ing more than they've al­ready bid, and at what point does it stop?"

Mar­riott's op­tions in­clude letting An­bang buy the com­pany it cov­ets; pay­ing a price so high that the merger may be­come too fi­nan­cially risky; or find­ing ways to make a more­ex­pen­sive ac­qui­si­tion pen­cil out, pos­si­bly through prop­erty sales. The 89year-old com­pany, founded by the fa­ther of its ex­ec­u­tive chair­man, has been ac­quir­ing ho­tel com­pa­nies to ex­pand glob­ally, though none of its targets have been as big as Star­wood.

"I don't think there is a bet­ter way to make this work, un­less Mar­riott ar­ranged the con­cur­rent sale of the real estate for a very high price," David Loeb, an an­a­lyst at Robert W. Baird & Co., said in an e-mail. "That is pos­si­ble but not easy."

Star­wood owns real estate val­ued at about $4 bil­lion, in­clud­ing the St. Regis in New York.

Shares of Star­wood rose 2 per­cent to $83.75 at the close of trad­ing. Star­wood's share price in­cludes about $5.95 a share for the pend­ing spinoff of its time­share busi­ness. Mar­riott climbed 3.9 per­cent to $71.34.

Star­wood said it's in ne­go­ti­a­tions with the An­bang group af­ter re­ceiv­ing a non­bind­ing of­fer of $82.75 a share in cash. Mar­riott's sec­ond stock-and-cash pro­posal is val­ued at about $78 a share, or about $13.2 bil­lion, based on Mon­day's clos­ing price.

In An­bang, Mar­riott Chief Ex­ec­u­tive Of­fi­cer Arne Soren­son con­fronts a 12-year-old Chi­nese com­pany that has moved ag­gres­sively to ex­pand out­side its home coun­try, part of a ti­dal wave of Chi­nese ap­petite for for­eign as­sets.

Mar­riott reaf­firmed its com­mit­ment to buy­ing Star­wood, which it wants for its loyal pool of guests and brands in­clud­ing Sher­a­ton, Westin and W, say­ing on Mon­day that the "pre­vi­ously an­nounced amended merger agree­ment is the best course for both com­pa­nies." The com­bi­na­tion of Mar­riott and Star­wood would cre­ate a ho­tel be­he­moth with about 5,700 prop­er­ties and 1.1 mil­lion rooms.

Soren­son said on March 21, the day that Star­wood said it ac­cepted a sweet­ened of­fer from Mar­riott, that its orig­i­nal merger agree­ment was "amaz­ing" and per­haps "too good" in hind­sight be­cause it drew a ri­val suitor.

Soren­son is aim­ing to make Mar­riott big­ger, to gain economies of scale and greater bar­gain­ing power with on­line travel agents, and at­tract younger trav­el­ers to com­pete with up­starts like Airbnb Inc. He joined Mar­riott 20 years ago af­ter work­ing in merg­ers and ac­qui­si­tions at Latham & Watkins LLP in Wash­ing­ton. He got to know Chair­man Bill Mar­riott -- still ad­dressed as Mr. Mar­riott in pub­lic -when he de­fended the com­pany in a law­suit. Soren­son, who has been CEO since 2012, is only the third CEO in Mar­riott's his­tory and the first non-Mar­riott fam­ily mem­ber to lead the com­pany.

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