Coverage: Anbang drops $14 billion offer for Starwood

A consortium led by China’s Anbang Insurance Group announced Tuesday it was stepping away from its $14 billion takeover offer of Starwood Hotels and Resorts, leaving Marriott as the only remaining bidder.

Michael J. de la Merced and Leslie Picker of The New York Times had the day’s news:

Ever since a group led by the acquisitive — and secretive — Chinese firm Anbang Insurance Group raised its bid for Starwood Hotels and Resorts, advisers to the American hotel company were a little wary that its new suitor might not be able to follow through.

And then early Thursday morning, Starwood and its advisers began to learn that Anbang was likely to walk away, just weeks after first emerging to challenge Marriott International in a highly visible merger contest.

By Thursday afternoon, Anbang and its partners formally withdrew their $14 billion takeover offer for Starwood, ceding the operator of the Westin and Sheraton chains to Marriott in a puzzling turn of events.

So ends what had been poised to become one of the big merger battles of 2016, as the century-old Marriott faced losing to a consortium whose leader boasted close ties to the Chinese government.

But after being topped twice in bidding by the group — which included Anbang, the American private equity firm J.C. Flowers & Company and Primavera Capital, an investment firm led by a former chairman of Goldman Sachs for Asia — Marriott decided earlier this week not to immediately raise its latest offer beyond roughly $13.25 billion, betting that something would befall the consortium’s efforts.

That wager paid off. Combining Starwood with Marriott will create the biggest hotel company in the world, with more than 5,500 owned or franchised hotels and 1.1 million rooms.

Starwood said in a statement on Thursday that it had still managed to extract more money for the company’s investors and looked forward to combining with Marriott.

“Throughout this process, we have been focused on maximizing stockholder value now and in the future,” Bruce Duncan, Starwood’s chairman, said. “Our board is confident this transaction offers superior value for Starwood’s stockholders, can close quickly and provides value-creation potential that will enable both sets of stockholders to benefit from future financial performance.”

Greg Roumeliotis and Matthew Miller of Reuters discussed why Anbang pulled its offer:

Starwood said on Thursday that Anbang had withdrawn its offer “as a result of market considerations,” which it did not specify. Marriott declined to provide immediate comment.

The move fueled speculation on what drove Anbang to change course, especially given that many Chinese overseas acquisitions have been encouraged by the country’s authorities.

Chinese financial magazine Caixin reported earlier this month that China’s insurance regulator would likely reject a bid by Anbang to buy Starwood, since it would put the insurer’s offshore assets above a 15 percent threshold for overseas investments.

Should Anbang have clinched an agreement with Starwood, it would have been scrutinized by the Committee on Foreign Investment in the United States (CFIUS), an interagency panel that reviews deals to ensure they do not harm national security. However, sources had said that both Starwood and Anbang believed the deal would have received CFIUS clearance.

“My guess is that Starwood wanted either a higher break-up fee, maybe a billion dollars, or a higher price from Anbang to offset the risk,” said Ryan Meliker, an analyst at Canaccord Genuity Group Inc.

Everett Rosenfeld of CNBC discussed how some critics have argued that Anbang has tried to expand too quickly in the U.S.:

Anbang has mounted an aggressive expansion into the U.S. hospitality industry, agreeing to buy Strategic Hotels & Resorts from Blackstone for $6.5 billion this month and concluding a deal last year to acquire New York’s Waldorf Astoria for $1.95 billion.

American hotels, especially Starwood, are an appealing asset for Anbang because they can offer long-term cash flow and have strong brand recognition, people familiar with the company’s strategy told CNBC earlier this month.

Some have criticized Anbang for being willing to pay too high a price for assets — especially those in the U.S. The explanation for this behavior may come in part in comments Anbang Chairman Wu Xiaohui made during a 2015 Harvard recruiting event.

“We must win the first battle and every battle thereafter as we are representing Chinese enterprises going global,” Wu said, according to a transcript of the event.