While it may have cost them an extra US$1 billion as a result of a late bidding war, it appears Marriott International will merge with Starwood Hotels & Resorts after Chinese insurance company Anbang on Thursday abruptly scrapped its US$13.8 billion cash bid citing “market considerations.”
With conjecture surrounding Anbang’s ability to finance its acquisition, whether or not it could earn regulatory approval in both China and the United States, and Starwood’s potential issue repatriating Chinese Renminbis, the deal that now seems to be in play is Marriott’s offer to Starwood shareholders of 0.8 shares of Marriott common stock and US$21 per share of Starwood common stock, which would give Starwood’s shareholders a 34% stake in the combined company.
According to a Starwood press release on Thursday evening based on closing stock prices, the Marriott deal is currently valued at approximately US$13.3 billion ($77.94 per share), including US$9.7 billion of Marriott stock and US$3.6 billion of cash. Until the deal is finalized, the value can still fluctuate depending on how Marriott’s stock performs.
Separately, Starwood stockholders will receive Interval Leisure Group (ILG) common stock from the spin-off of the Starwood timeshare business and subsequent merger with ILG, currently valued at US$6.13 per Starwood share. The amended agreement and the ILG transaction have a combined current value of US$84.07 per share of Starwood common stock.
Barring any other last-minute unsolicited bids, Starwood and Marriott will hold their shareholder meetings on April 8 to approve the current merger proposal, which could close by June. The combination will make Marriott the biggest hotel company in the world with more than 5,500 owned or franchised hotels and 1.1 million rooms.
Potential fallout from the news, according to R.W. Baird analyst David Loeb: The hotel sector will likely to trade lower on concerns that foreign capital might face challenges consummating transactions. “Now that the [Anbang] consortium has withdrawn its acquisition proposal, we would expect both the hotel brands and hotel REITs to trade lower as Anbang’s bid was seen as evidence that foreign capital remained an aggressive buyer of hotels,” Loeb wrote Friday morning. “Additionally, this bidding war has highlighted the potential challenges a foreign investor might face when attempting to buy U.S.-based companies/assets, which could potentially deter other foreign buyers from investing capital in the U.S., especially in higher-profile deals like this one.”