The hotel merger-and-acquisition market has been white hot in recent months, bringing companies like Starwood Hotels (HOT) into the spotlight as targets.
When Marriott International (MAR) offered to buy Starwood last November for $12.2 billion, the deal was seen as undervaluing Starwood.
"This is a terrible deal for Starwood shareholders. On a fundamental basis I think that stock would be worth more," said Action Alerts PLUS co-manager Jim Cramer in November. At the time, Starwood was a holding in the portfolio, but the charitable trust has since exited its position in the company.
Chinese investors must have felt the same way about the undervalued nature of Marriott's bid because today Starwood received an unsolicited bid from a consortium led by Anbang Insurance Group valued at $76 per share or about $12.8 billion, based on Starwood's total outstanding shares. Marriott's bid has a current value of $63.74 per share.
The Deal: China's Anbang Targets Starwood
Five months ago, Starwood jumped at an acquisition offer that was generally seen as undervaluing the company, suggesting that the core business' intrinsic value was well below the level where shares were trading at the time. Now Anbang has jumped in with an increased bid.
Marriott responded to Anbang's bid today: "Marriott International today reaffirmed its commitment to acquire Starwood Hotels & Resorts Worldwide, to create the world's largest hotel company. The combined company will offer stockholders significant equity upside and greater long-term value driven by a larger global footprint, wider choice of brands for consumers, improved economics to owners and franchisees leading to accelerated global growth and continued strong returns. Marriott is confident that the previously announced merger agreement is the best course for both companies."
The fact that Marriott's stock is climbing on heavy volume today may be very telling about how shareholders feel about the decision to purchase Starwood. "The original agreement between Marriott and Starwood was initially met with disapproval on both sides, and it is clear that Marriott shareholders remain skeptical considering the stock's bounce on today's news. Investors on both sides could end up getting what they want," said Scott Berman, senior portfolio analyst of the Action Alerts PLUS charitable trust.
So what's the deal? Anbang's interest in the U.S. hotel market didn't begin with Starwood. It purchased the iconic Waldorf Astoria for $1.95 billion two years ago.
Over the weekend, Anbang was involved in another high-profile hotel-sector acquisition, reportedly buying Strategic Hotels & Resorts from Blackstone (BX) for $6.5 billion. Strategic Hotels & Resorts owns the Four Seasons hotels and resorts in Silicon Valley, Washington and Jackson Hole, Wyo., the Fairmont and Intercontinental hotels in Chicago and the JW Marriott Essex House Hotel in Manhattan. What makes this acquisition so pertinent is that Blackstone took the company private only three months prior for $6 billion. Real Money's Antonia Oprita has more on Anbang's strategic acquisition here.
Meanwhile, Starwood said it would continue to advise shareholders to approve Marriott's bid despite the added immediate value that Anbang brings to the table.
"Starwood's board of directors has not changed its recommendation in support of Starwood's merger with Marriott," the company said in a statement today. "The consortium has not completed diligence and there are a number of matters to be resolved in the consortium's proposal. There can be no assurance that discussions will result in a binding proposal from the consortium or that a transaction with the consortium will be approved or consummated."
Starwood and Marriott shareholders will vote on whether to approve their merger on March 28, with Marriott receiving a $400 million termination fee if Starwood decides against going forward with the deal. Starwood's chart is headed to $81 despite its merger volatility, according to Real Money chartist Bruce Kamich.
"The decision will ultimately be telling of how Starwood values their own business and the hotel/travel business in general. It will be interesting to see whether the long-term value potential of the merger with Marriott can outweigh the temptation for an immediate payday," Berman said.
Two things are apparent following this news. One is that the hotel sector's M&A market remains extremely active. Second is that China intends to be a key player in that market. How this will play out is anyone's guess, but hotel merger activity doesn't look to abate any time soon.