The Sheraton Adana Hotel, part of Starwood’s portfolio
STARWOOD Hotels & Resorts Worldwide has tentatively ended the tussle between Marriott International and a consortium led by Anbang Insurance Group for ownership of the international hospitality chain, with Starwood yesterday agreeing to a new deal with Marriott under amended merger terms.
Under the new agreement, Starwood shareholders will receive US$21 in cash and 0.8 shares of Marriott’s Class A common stock for each share of Starwood’s common stock, valuing Starwood at approximately US$13.6 billion or US$79.53 per share, consisting of US$10 billion of Marriott stock, based on the closing price of US$73.16 on March 18, and US$3.6 billion of cash, based on approximately 170 million outstanding Starwood shares. This excludes Starwood’s timeshare business.
Starwood shareholders will own approximately 34 per cent of the combined company’s common stock after completion of the merger, based on current shares outstanding.
In addition, Starwood stockholders are expected to receive separate consideration in the form of Interval Leisure Group (ILG) common stock from the spin-off of Starwood’s timeshare business and subsequent merger with ILG, currently valued at US$5.83 per Starwood share, based on ILG’s share price as of market close on March 18.
Commenting on the renegotiated deal, Bruce Duncan, chairman of the board of directors of Starwood, said: “We are pleased that Marriott has recognised the value that Starwood brings to this merger and enhanced the consideration being paid to Starwood shareholders.”
The transaction, which will result in the world’s largest hospitality chain with 1.1 million rooms spread throughout 5,500 properties, is still subject to Marriott and Starwood stockholder approvals, completion of Starwood’s planned disposition of its timeshare business, obtaining remaining regulatory approvals and the satisfaction of other customary closing conditions.
According to a joint statement released by Marriott and Starwood, some regulatory consents have already been completed, such as pre-merger antitrust reviews in the US and Canada.
“After five months of extensive due diligence and joint integration planning with Starwood, including a careful analysis of the brand architecture and future development prospects, we are even more excited about the power of the combined companies and the upside growth opportunities,” said Arne Sorenson, president and CEO, Marriott International.
“We are also more confident of achieving our updated target of US$250 million of cost synergies. With a higher cash component in the purchase price, we have improved the transaction’s financial structure as well.”
Assuming receipt of the necessary approvals, the transaction is expected to close by mid-2016. Termination fees payable by Starwood has also been increased to US$450 million from US$400 million. In circumstances in which the break-up fee is payable, Starwood would also be required to reimburse Marriott for up to US$18 million of actual costs incurred by Marriott in connection with the financing of the transaction.
But analysts Baird Equity Research expects the Anbang-led group to remain aggressive and return with a higher all-cash counteroffer. “Overall, we believe Marriott will remain disciplined, and we continue to expect that the company will not engage in a protracted bidding war for Starwood,” it added in a statement.
“Additionally, we believe the US$450 million termination fees makes Marriott much more indifferent between acquiring Starwood and walking away if the Anbang consortium counters with a superior proposal.”
Starwood had last week considered a rival bid made by a group led by China’s Anbang along with its partners Primavera Capital Group and J.C. Flowers & Co., calling the estimated US$13 billion offer a “superior proposal” to Marriott’s initial one made in November 2015.
