-- This article was written by Lou Whiteman of The Deal
China's Anbang Insurance Group could face scrutiny from home that could limit its ability to win a bidding war against Marriott International (MAR) for Starwood Hotels & Resorts Worldwide (HOT), according to a Chinese media report.
Anbang earlier this month moved to disrupt Marriott's deal for Starwood, partnering with J.C. Flowers & Co. and Primavera Capital to offer $13.16 billion for the Stamford, Conn.-based hotel operator. Marriott returned Monday with a sweetened $13.6 billion offer, with Starwood shareholders now waiting to see how the Chinese respond.
But Anbang might already be pushing up against what the Chinese government will allow. According to a report in Chinese financial publication Caixin, the China Insurance Regulatory Commission has a "disapproving attitude" towards the Starwood bid and is worried that the deal would push Anbang's offshore asset total above approved thresholds.
Anbang in recent years has been an aggressive acquirer of U.S. hotel assets, in 2014 buying New York's Waldorf Astoria for $1.95 billion and earlier this year reaching an agreement to buy Strategic Hotels & Resorts I from Blackstone Group (BX) for $6.5 billion. According to Caixin, the Strategic offer could also be in trouble, with the insurance regulator considering rejecting that planned deal as well.
The Chinese insurer, which was founded just 11 years ago, has spent nearly $7 billion on foreign acquisitions since 2014. Chinese regulations limit insurers from investing more than 15% of their assets abroad, according to the report.
Trouble at home would come as a disappointment to Starwood holders, with analysts saying Monday that there appeared to be room for Anbang and its partners to return with a new offer despite Marriott negotiating a $450 million breakup fee into its latest agreement. But the Chinese bidder has already created a windfall for Starwood holders, forcing Marriott to up its initial agreement by 11%.
An unnamed source told Caixin that capital requirements were one reason why regulators opposed Anbang's expansion but hinted there were other, unnamed objections as well.
A combined Marriott/Starwood would rank as the world's largest collection of hotel brands, boasting a portfolio of more than 5,000 properties worldwide operating under brands including Ritz-Carlton, Residence Inn, St. Regis, Westin and Le Méridien.
Marriott and Starwood shareholders are expected to vote on the combination on April 8, pending further actions by Anbang or another rival suitor.
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