Anbang Insurance Group Co. was a surprise entrant when it emerged three weeks ago as the lead bidder for Starwood Hotels & Resorts Worldwide Inc. Its decision to back out of the $14 billion (Dh51.41 billion) takeover offer was just as unexpected.
Yet negotiations to buy Starwood were rocky even as they began last year, stumbling for the first time in November and leading the Chinese insurer to walk away, according to regulatory filings and a person with knowledge of the matter.
Anbang’s move to pull out of the bidding for the owner of the Sheraton, W, St. Regis and Westin brands ends the takeover battle, clearing the way for an acquisition by Marriott International Inc. The Beijing-based insurer, which had partnered with J.C. Flowers & Co. and Chinese private equity firm Primavera Capital Ltd., decided not to proceed because of “various market considerations”.
Back in November, Anbang Chairman Wu Xiaohui rescinded a preliminary offer to acquire Starwood right in the middle of a meeting, after he was pressed to provide written details of the insurer’s financing plans. It wasn’t until March that Wu and new partners came back to the negotiating table. After twice topping rival bids from Marriott, it looked like the target was almost in his grasp. Starwood had a draft merger agreement in place and was ready to make a deal, the company said in a regulatory filing.
On March 29, Wu called Starwood CEO Tom Mangas and said the company was considering raising its price and needed “a couple of days” to finalise the plan. Then, on the last day of March, Starwood’s lawyers were informed of a sudden termination of the $14 billion Anbang offer, according to the filing. The Anbang consortium followed with a letter to Starwood executives using the same “market considerations” language as in its public statement later.
Anbang’s abrupt withdrawal for the second time surprised the Starwood board and its advisers. This time around, Anbang’s Wu had answered their concerns. Anbang had demonstrated that funding not only was in place, it was already out of China, according to people with knowledge of the talks. In addition, the Chinese insurer had committed to pay a significant termination fee should any regulatory opposition scupper the deal.
The withdrawn bid brought to an end one of the most high-profile bidding wars of 2016 and what would have been the largest Chinese acquisition of a US firm. It also marks a blow to the ambitions of Anbang’s politically connected chairman, who has been notching up purchases from South Korea to the Netherlands after agreeing to purchase New York’s landmark Waldorf Astoria hotel in 2014.
“It’s quite a surprise that they withdrew the offer,” Sigrid Zialcita, managing director of Asia-Pacific research at Cushman & Wakefield Inc in Singapore, said. “They bit off more than they can chew.”
Starwood’s Mangas said on a conference call that Anbang “moved mountains” to persuade the board to consider its deal before ultimately walking away. “They told us what they told the market,” Mangas said. “They make decisions quickly and they don’t feel a need to have a big publicity around their decision-making process.”
Starwood put itself up for sale early last year after lagging behind larger competitors in expanding the number of properties carrying its brands. It was pursued by about a dozen companies, including Hyatt Hotels Corp. and other Chinese suitors, before Marriott swooped in.
The takeover battle underscored the scale of Chinese companies’ global ambitions. Had Anbang won Starwood, it would have been the largest buyout of a US company by a Chinese investor, topping the 2013 purchase of Smithfield Foods Inc for $7 billion including debt.
Anbang has been expanding into US hotels, bursting onto the scene with its $1.95 billion acquisition of the Waldorf. The insurer has also agreed to a $6.5 billion purchase of Strategic Hotels & Resorts Inc, an owner of US luxury properties including New York’s JW Marriott Essex House, from Blackstone Group LP. That deal is proceeding as planned, according to people with knowledge of the matter.
The Beijing-based company, founded in 2004, has ranked among the boldest actors in the game, and its pull extends beyond pure business. While many Chinese companies cultivate alliances with relatives of current and former senior officials, Anbang also has links to some of modern China’s most powerful families.
According to China’s ‘Caixin’ magazine, Wu formed ties with the family of Deng Xiaoping, one of China’s most revered leaders, after marrying Deng’s granddaughter. Caixin has also reported links to the family of Chen Yi, a top military commander under Mao Zedong, as well as to the family of Zhu Rongji, China’s former premier.
Anbang’s departure from the Starwood bidding means Marriott moves closer to an acquisition that would form the world’s largest hotel company, with about 30 hotel brands. Marriott, besides its namesake label, owns brands including Ritz-Carlton, Bulgari, Protea and Moxy.
Starwood shareholders are scheduled to vote April 8 on Marriott’s cash-and-stock offer, valued at $77.94 a share, or $13.2 billion, based on March 31 closing price. The value excludes Starwood’s pending timeshare spinoff.
Marriott argued that combining with a seasoned operator would create greater value for Starwood shareholders long term. Marriott’s stock has almost doubled since Arne Sorenson became CEO four years ago, beating Starwood and the Standard & Poor’s 500 Index by a wide margin.
A merged Marriott and Starwood would gain power in negotiating commissions with online travel agents and be better able to compete with upstarts such as Airbnb Inc. With the deal’s closing, expected mid-year, Marriott would surpass Hilton Worldwide Holdings Inc to become the biggest hotel company, with about 1.1 million rooms in 5,700 properties.
Sorenson said that Marriott has “zero buyer’s remorse” about Starwood, even at the higher price. Paulson & Co, Starwood’s biggest shareholder, said it plans to support the deal.
While Anbang walked away from Starwood, CEO Mangas indicated he wouldn’t count the insurer out as a hotel deal maker. “Anbang has a great interest in the US hotel market — how they choose to play it and how the market considerations shift in their mind,” he said. “But I think they’re a formidable and highly interested buyer of hotel assets.”
