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Marriott has submitted an increased offer for the outstanding shares in Starwood Hotels & Resorts and Starwood’s Board of Directors has determined that the revised terms of the agreement “constitute a superior proposal compared to previously announced offer by Consortium led by Anbang Insurance Group”.
Wow was I wrong. On Friday I said the following:
Marriott, however, has a big problem. It’s offer consists almost entirely of Marriott stock while the consortium is dangling cash in front of the Starwood shareholders.
Not only would Marriott now have to offer more than the rival consortium is willing to pay, but it would also have to beat the offer by a margin that made it tempting for Starwood’s shareholders to take Marriott stock as opposed to cash. And I simply can’t see that happening.
Well, it turns out Marriott was prepared to make a higher offer after all.
Marriott’s New Offer To Starwood
The original Marriott offer amounted to $2.00 + 0.92 shares in Marriott for every Starwood share while the new revised offer would pay Starwood shareholders $21.00 + 0.8 shares in Marriott for each Starwood share.
Marriott’s stock price rose on Friday following the news that the takeover of Starwood was looking unlikely (which should give you an indication of what Wall Street thinks of the deal) while, as I type, the stock is down over 1%:
The last offer from the Consortium that was looking to trump Marriott’s offer was for $78 (cash) per Starwood share while this new, improved, offer from Marriott would see Starwood Shareholders receive the equivalent of $78.91/share based on the Marriott stock price as I type this.
In response to Marriott’s improved offer Sherwood’s Board of Directors have announced that the two companies have “signed an amendment to their definitive merger agreement that creates the world’s largest hotel company.”
The merger is back on….for now.
Thoughts
As my last post on this matter made very clear, I didn’t expect Marriott to come back with such an improved offer…and I’m still very surprised that they did.
Let’s not forget that a few other hotel groups took a look at Starwood last year and none of them thought that improving on Marriott’s original offer was worth it…and yet now we have Marriott offering considerably more than they were just a few weeks ago. If I was a Marriott stock holder I don’t think I’d be too happy with this.
In any situation where bidding is involved whether it’s in an auction house, on eBay or in the high-powered world of mergers and acquisitions, there’s always a risk that one of the bidders gets caught up in the process and bids more than they intended too….and there’s a chance that that’s what happening with Marriott here.
The main players in the consortium have a recent history of overpaying for hotels (just google “Waldorf Astoria Sold” too see what I mean) so there’s every chance their recent offer for Starwood was an overbid as well….so what would that make Marriott’s improved offer?
Anbang Insurance Group paid almost $2bn for the Waldorf-Astoria – image Justin Lane
Bottom Line
I’ve already proven once that I’m not great at predicting what’s going to happen with the Starwood takeover but that doesn’t mean I’m not going to have another go! 🙂
I still think that, because Marriott’s offer is so dependent on its stock price, the Consortium would find it easy to come back with a better offer if it wanted to…and I suspect it will. This is all great news for Starwood shareholders because, contrary to what I though, we do appear to have a bidding war in progress….but the reason why I didn’t think we’d get one is because I appear to have given Marriott too much credit.
I genuinely believe that Marriott is overpaying for Starwood at the current level so you can probably imaging what I’d think if Marriott went ahead and beat an improved offer from the Consortium.
The next few days will be interesting. Marriott and Starwood have arranged for a special stockholder meetings to be held on 8 April to push though the takeover agreement but that date gives the Consortium plenty of time to respond.
