Starwood Goes Back to Marriott

By Barbra Murray, Contributing Editor

Thomas Mangas, Starwood Hotels & Resorts Worldwide

New York—It’s nice being courted but it’s dreadful getting dumped—unless there’s another option in the wings, and Starwood Hotels & Resorts Worldwide Inc. had another option when Anbang Insurance Group Co. Ltd. withdrew its offer to acquire the hotel company last week. A revised proposal from Marriott International Inc. was still on the table and Starwood accepted it, bringing the battle of the bids to an end, purportedly for good.

Starwood has been keeping Lazard and Citigroup, its financial advisors, and legal counsel Cravath, Swaine & Moore quite busy with merger business for the last few months. It all started in November 2015, when Starwood and Marriott announced that they had entered into a definitive merger agreement under which Marriott would pay $12.2 billion in cash and stock to acquire Starwood. The process moved forward until March 2016, when a consortium consisting of China-based Anbang, J.C. Flowers & Co. and Primavera Capital Ltd. made an offer of $13 billion. Then the battle began.

Marriott followed up, proposing $13.6 billion, after which Anbang came back with $14 billion. But Anbang withdrew its offer, and on March 31, Starwood decided to commit to Marriott’s revised offer which, given the drop in Starwood stock, had decreased in value to $13.3 billion. The deal gives Starwood shareholders $21 in cash and 0.80 shares of Marriott Class A common stock for each share of Starwood common stock, for a total value of $77.94 per share. This one could stick, as Anbang has informed Starwood that it does not plan to present another offer.

Speaking about Anbang during a Marriott-Starwood investor meeting on April 1, Thomas Mangas, CEO of Starwood, said, “Certainly, we were disappointed when we couldn’t take a final step and they withdrew from the process yesterday, but all along, our shareholders have been encouraged to support the Marriott deal and we continue to support the Marriott deal, as it’s the best deal for our shareholders.”

Marriott might have come out on top, but the price tag on the merger is nothing to sneeze at. Fitch Ratings announced that it continues to see positive ratings momentum for the company—but that could change should Marriott find itself in another bidding war. “Marriott’s conservative and creditor-friendly approach to structuring and financing its offer were considered in our Positive Outlook. Marriott had limited cushion within our rating sensitivities to increase leverage much beyond what was contemplated in its revised offer,” Stephen Boyd, senior director with Fitch Ratings, told Commercial Property Executive.

Both Starwood and Marriott are urging their respective shareholders to give the proposed merger the thumbs-up in the form of an affirmative vote during a special meeting scheduled for April 8.

Should Starwood and Marriott follow through with the merger, the union will yield the largest hotel company in the world—roughly 5,500 hotels totaling 1.1 million guestrooms spanning more than 100 countries—and make quite an impact on the industry. Boyd said, “The hotel sector will likely see more consolidation—particularly between smaller brand owners and larger internationals with less diversified portfolios by geography and chain scale. The scale benefits in purchasing, customer rewards and negotiating power with online travel agents that Marriott will enjoy as a result of the merger will be difficult for smaller and less diversified brand owners to compete with.”