After almost being outbid by Chinese insurer Anbang Insurance Group, Marriott International ended a weekend of nail biting with a $13.6 billion acquisition of Starwood Hotels & Resorts Worldwide today. The amended deal has Starwood receiving $21 in cash and 0.8 share of Marriott stock for each share of Starwood. The company’s revised offer provides for a $450 million break-up fee payable by Starwood to Marriott in certain circumstances, as well as reimbursement of up to $18 million of financing related merger costs incurred by Marriott.
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If Anbang stays in the race and launches a successful new bid for Starwood, the acquisition would be the largest ever by a Chinese company in the United States.
RBC Capital Markets analysts said that if Anbang wanted to pursue Starwood, it would need to bid “at least $84 in order to compensate Starwood for a longer closing period and increased uncertainty on the regulatory front ” .
A Marriott-Starwood combination will create the world’s largest hotel chain with top brands that also include Ritz Carlton and the Autograph Collection. As of December 31, 2015, the company had 1,282 owned, managed, or franchised hotels with approximately 362,300 rooms; and approximately 15 stand-alone vacation ownership resorts and residential properties.
Marriott improved the cash component of its offer substantially.
“We are pleased that Marriott has recognised the value that Starwood brings to this merger and enhanced the consideration being paid to Starwood shareholders”, said Bruce Duncan, chairman of Starwood’s board of directors.
Marriott expects annual cost savings of about $250 million with the merger, up from the $200 million it estimated when it sealed the merger agreement in November, Sorenson said Monday.
“We believe this is the best bid Marriott is willing to make”, Canaccord Genuity analyst Ryan Meliker wrote in a note. It bought the Waldorf Astoria, a landmark hotel in NY, last year.
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Last week, in addition to the Starwood bid, it announced the $6.5 billion purchase of Strategic Hotels & Resorts from Blackstone. However, less creditor friendly financial terms associated with Marriott’s revised offer for Starwood increases execution risk and will likely delay the conclusion of our Positive Outlook towards the latter part of the one- to two-year Rating Outlook horizon.
