Starwood bidding war escalates with higher offer

After a Chinese-led group raised its bid for Starwood Hotels to $14 billion, the hotel chain's other suitor must now decide whether it will prolong the bidding war.

For now, Marriott International is sticking to its $13.5 billion offer, the company said on Monday, arguing that its proposal was solid while the competing offer led by the Anbang Insurance Group of China may not be able to close.

Starwood declared Monday that Anbang's latest offer was "reasonably likely to lead to a 'superior offer,' " paving the way for Starwood to break its agreement with Marriott.

The bidding war - the most prominent so far this year - pits Marriott, the nearly century-old hotelier, against Anbang, a Beijing-based insurer that already owns the Waldorf Astoria and the JW Marriott Essex House hotels in Manhattan.

Combining Marriott and Starwood would create the biggest hotel company in the world, with more than 5,500 owned or franchised hotels and 1.1 million rooms.

But Anbang has close ties to the Chinese government, potentially furnishing the insurer with huge sums of cash. So far, Anbang has proved willing to pay handsomely for Starwood, the operator of the Westin and Sheraton chains.

The latest offer from Anbang, whose group also includes the American private equity firm J C Flowers & Company and the China-based Primavera Capital Group, amounts to $82.75 a share in cash.

That's up 4 percent from the sweetened bid that Marriott offered last week, which Starwood accepted.

In a statement, Starwood said that the Anbang group had offered $81 a share on Saturday, and then the current $82.75 after talks between the two sides began.

Both offers would supplement Starwood's plan to sell its time share business to the Interval Leisure Group, an all-stock transaction that is valued at about $5.91 a share, based on Thursday's closing prices.

Analysts have said that Marriott will be hard-pressed to raise its offer to win the battle, since raising the cash portion of its offer could threaten its investment-grade rating. Adding more stock as consideration could harm its earnings per share.

"We do not believe Marriott is willing to incur earnings dilution to facilitate the transaction," analysts at Wells Fargo wrote in a research note on Monday.

That has left Marriott raising concerns about the certainty of Anbang's offer. In its statement on Monday, Marriott questioned whether the Chinese insurer truly had the financing necessary to close that deal, and how long American government regulators would drag out their inquiries into the transaction.

Of particular concern, Marriott is likely to note, is how critically a government panel focused on the national security aspect of mergers will look at an Anbang-led takeover. Marriott could argue that the proximity of Starwood properties near sensitive locations such as government offices and military bases could force divestitures, pushing back the closing of a deal.

Shares in Starwood were up more than 2 percent Monday afternoon, to $83.94, suggesting that investors expected further escalation. Shares in Marriott were up 4 percent, to $71.40.

©2016 The New York Times News Service