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Starwood's Takeover Takes a New Turn: Anbang Drops Out

Zacks Equity Research

Starwood Hotels & Resorts Worldwide Inc. HOT announced that a consortium of companies headed by Chinese insurer Anbang Insurance Group Co., Ltd. has withdrawn its proposal to acquire Starwood for $82.75 per share and does not aim to make another offer. The withdrawal of the offer by the consortium of companies, which also included J.C. Flowers & Co. and Primavera Capital Limited, was primarily due to concerns related to the market.

This announcement paves the way for Marriott International, Inc. MAR to merge with Starwood. In fact, the two hoteliers will host their individual shareholder meetings on Apr 8 to vote for the planned merger.

Last November, Marriot and Starwood had agreed upon a definitive merger to create the world's largest hotel company. However, on Mar 14, Starwood announced that it has received a non-binding offer from a group of companies led by Anbang Insurance Group Co. to acquire all its outstanding shares for $76 each in cash or a total of around $13 billion, per media reports. Since then, Anbang has raised its offer multiple times to win over Starwood.

Later, on Mar 21, Marriott raised its bid to $13.6 billion from the previous offer of $12.2 billion. Per the latest deal, Starwood shareholders would receive 0.80 shares of Marriot for each Starwood share as against 0.92 shares previously agreed upon. Instead, the cash consideration was raised from $2.00 to $21 for each Starwood common stock.

The amended agreement currently values Starwood at $77.94 per share (as on the close of business on Mar 31), which translates to $13.3 billion including $9.7 billion of Marriott stock and $3.6 billion in cash.

In addition, Starwood shareholders will receive a separate consideration from the spin-off of Starwood’s timeshare business – Vistana Signature Experiences – and its proposed merger with Interval Leisure Group, Inc.’s IILG wholly owned subsidiary. The combined offer now holds a current value of $84.07 per share of Starwood.

The annual cost synergies from the transaction for Marriot are expected to be $250 million, an increase from $200 million estimated in November last year. The deal, expected to close in mid 2016, is subject to approval of shareholders of both the companies, completion of the timeshare spin-off and other regulatory approvals and closing conditions.

On completion, the combined entity would operate or franchise about 5,700 hotels with 1.1 million rooms across the world bringing together 30 brands catering to all lodging segments.

Starwood currently carries a Zacks Rank #4 (Sell). A better-ranked stock in the same sector is Intrawest Resorts Holdings, Inc. SNOW, which sports a Zacks Rank #1 (Strong Buy).

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