The bidding for Starwood Hotels & Resorts worldwide is over. After a hot auction processes between an investor group lead by the Anbang Insurance Group of China and Marriott International, Anbang dropped out after making a billion offer citing market conditions. The Marriott bid topped out at around billion.
Marriott (MAR) says it wants to buy Starwood (HOT) and become the world’s largest hospitality chain. Marriott already owns 19 hospitality brands, including Bulgari and Ritz-Carlton.
Starwood owns luxury hotel chains Sheraton, Westin, and W, and the St. Regis in Manhattan.
Starwood shareholders will get $21 cash and 0.80 of a Marriott Class A share for each Starwood share held. Starwood shareholders will own about 34 percent of the combined company, which immediately becomes the world’s largest hotel chain.
Aiding Anbang were Primavera Capital and J.C. Flowers & Co.
Anbang last year paid $1.95 billion to buy the Waldorf Astoria in New York, and reportedly agreed to pay $6.5 billion to buy Strategic Hotels & Resorts.
Analysts were encouraged by the purchase. David Katz, with Telsey Advisory Group, said the result was not a complete surprise.
“The complexity of issues and financing requiring resolution for Anbang to close required a significantly higher bid than the $3 per share difference, in our view,” Katz wrote in a note to investors. “Nonetheless, we believe the fact that MAR management has indicated that the deal should be approximately earnings neutral through 2017 could temper the performance in the shares.
“We consider the notion that MAR can execute and integrate better than it has indicated thus far, which is a realistic possibility. HOT has been engaged in a strategic process since February 2015 after removing its CEO for lack of execution. We note that the senior executive team has been fluid over the past number of months. The result is a likely undermanaged company and more low-hanging fruit for MAR to capture in the integration. The synergies have thus far been limited to costs and do not reflect any revenue synergies, which we expect are likely to be available. Overall, we believe there could be more opportunity to add value than MAR has indicated thus far, which would lead to improved stock performance.
“The key risks lie in the complexity of the integration. First, the combination of the Marriott and Sheraton brands in the same system in direct competition in the U.S. will require a set of strategies to result in greater combined value. As well, the deal is predicated on MAR selling all of the owned assets and generating $1B-$1.5B in net proceeds, which relies on capital markets’ support. Longer term, the integration of the loyalty programs could be complicated, given the distinct attributes of each program and the relationships with their respective timeshare partners.”
