Marriott vs Anbang: the fight for Starwood
Reuters put out an analytical piece on China’s Anbang Insurance Group’s challenge to Marriott International’s merger with Starwood with a US$12.8 billion cash offer.
The non-binding bid, unveiled on Monday just days after Anbang agreed to acquire Strategic Hotels & Resorts from buyout firm Blackstone Group for US$6.5 billion, would represent by far the biggest Chinese investment in US real estate assets, according to Reuters.
Chinese insurers are rushing to acquire high-yielding assets as they struggle to keep up with the policy liabilities of the country’s ageing population. US assets are also seen as a good hedge against any future weakness in the yuan.
The head of China’s insurance regulator, Xiang Junbo, wrote in January in a magazine published by the country’s central bank that Chinese insurers should venture overseas for investments. These investments, however, are not without hurdles.
Anbang’s US$2 billion acquisition of the iconic Waldorf Astoria Hotel in New York, which was completed last year, attracted scrutiny from the Committee on Foreign Investment in the United States (CFIUS), which reviews deals over possible national security concerns.
US President Barack Obama used to stay at that hotel when visiting United Nations headquarters in New York.
While there is no indication that a potential acquisition of Starwood by Anbang would raise concerns about potential espionage, experts said it was possible such a deal would also trigger a CFIUS review, according to Reuters.
One Starwood property for example, the W Hotel in downtown Washington, DC overlooks the US Treasury. However, CFIUS issues with individual hotels could be remedied through divestments or other measures.
“Anything with a line of sight to a major US government entity or security facility has to be a questionable part of the transaction and needs to be assessed by CFIUS,” said Mike Wessel, a member of the congressional US-China Economic and Security Review Commission.
Anbang plans to keep Starwood’s corporate headquarters in the US and not implement any layoffs, according to a person familiar with the company’s plans.
Marriott said it remained committed to its cash-and-stock deal with Starwood, which would create the world’s largest hotel chain with top brands including Sheraton, Ritz Carlton and the Autograph Collection.
Starwood said it received a waiver from Marriott that allows it to engage in discussions with Anbang’s consortium. The waiver expires on March 18.
“Anbang’s non-binding offer places Starwood shareholders in the difficult position of choosing between Marriott’s bird-in-a-hand firm commitment and Anbang’s two-in-the-bush offer,” Nomura Securities analyst Harry Curtis wrote in a note to clients.
Marriott may slightly improve the terms of its offer and emerge as the winning bidder, Curtis said.
Anbang participated in the sale process for Starwood last year but could not put together the financing that was required at the time to outbid Marriott, according to a person familiar with the matter who asked not to be identified disclosing confidential details. It was not clear how Anbang would fund its latest cash offer.
Starwood will have to pay Marriott a US$400 million termination fee if it accepts a rival offer or withdraws its recommendation to its shareholders to vote in favour of the Marriott merger.