Starwood Bidding Continues – Marriott’s Offer Trumped (Again)

The circus that is the on again, off again merger between Marriott and Starwood took another twist today as the consortium of companies, led by Anbang Insurance, upped its offer for Starwood to $82.75 per share in another all-cash offer.

If you haven’t been following this soap opera here are the highlights so far:

• In late 2015 a number of hotel chains showed an interest in acquiring Starwood but Marriott’s offer of $2.00 in cash + 0.92 shares in Marriott for every Starwood share was considered to be the best.
• A consortium of companies led by Anbang Insurance showed an interest in bidding for Starwood but couldn’t/wouldn’t provide Starwood’s Board of Directors satisfactory evidence of how the would finance the deal.
• Marriott look set to complete its takeover of Starwood until, on 14 March 2106, Starwood announced that it had received an “unsolicited offer” of $76/share (all cash) from the Consortium. And this time the Consortium was in a position to give the Starwood Board all the information they needed. Marriott’s takeover of Starwood was in trouble.
• On 18 March things got a little worse for Marriott as, following discussions with Starwood, the Consortium upped its all-cash offer to $78/share. Based on the price of Marriott’s shares at the time, the Consortium’s offer was around 19% higher than what Marriott was offering….and Starwood accepted it.
• On 21 March Marriott, to my surprise, upped its original offer for Starwood to $21.00 cash + 0.8 shares in Marriott for each Starwood share. Based on the Marriott share price this offer was equal to around $79/share – just higher than the offer from the Consortium and enough to get he Starwood Board back on Marriott’s side.

At the time I wrote the following:

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.

Sure enough that’s exactly what’s happened.

Starwood has today announced that it has received an improved offer from The Consortium amounting to $82.75 in cash for each outstanding share in Starwood.

This is what Starwood has told us:

On March 26, 2016, Starwood received a non-binding proposal from the Consortium, under which the Consortium would acquire all of the outstanding shares of Starwood common stock for $81.00 per share in cash. Starwood’s Board, in consultation with its legal and financial advisors, determined that this proposal is reasonably likely to lead to a “Superior Proposal,” allowing Starwood to engage in discussions with, and provide diligence information to, the Consortium in connection with its proposal. Starwood commenced discussions with the Consortium on March 26, 2016 and, in those discussions, the Consortium made a revised proposal with an increased purchase price of $82.75 in cash per share of Starwood common stock. Starwood and the Consortium are continuing to discuss non-price terms related to the Consortium’s revised proposal, and are working to finalize the other terms of a binding proposal from the Consortium, including definitive documentation.

Importantly this new offer is not yet a binding proposal as Starwood goes on to say:

There can be no assurance that discussions will result in a binding proposal from the Consortium, that the Starwood Board will determine that any such proposal is a “Superior Proposal” or that a transaction with the Consortium will be approved or consummated on any particular terms or at all.

The offer from the Consortium is in addition to the existing deal that Starwood has to spin-off its timeshare business to Interval Leisure Group which, at current pricing, is set to net Starwood shareholders a further $5.91/share. This brings the total offer to Starwood’s shareholders to $88.66/share.

As far as the bidding for Starwood goes, the timeshare portion is pretty irrelevant as both bidding parties are happy for the spin-off to continue as planned. What matters is the specific offer for Starwood stock and, as things stand right now with Marriott’s share price at around $71.35, Marriott’s offer stands at around $78.share making the Consortium’s offer 6% higher.

What Happens Now?

Starwood has a shareholder meeting today which it will adjourn to 8 April as had already been planned which is when a vote is scheduled to be taken to decide on how to proceed and which offer to proceed with.

In the meantime Marriott has a few days to consider its position and decide if it feels an improved offer of its own is merited. A press release from Marriott today doesn’t give much away and simply says:

Marriott International Reaffirms Its Commitment To Acquire Starwood Hotels & Resorts Worldwide; Says Its Signed Deal Provides Greater Long-Term Value For Starwood Stockholders

Bottom Line

The winners in all of this are the Starwood shareholders as the amount of cash they’re set to get for their shares keeps going up. The question now is: Will Marriott increase its offer?

A week ago I wrote;

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.

And I haven’t changed my mind.

You can get an idea of what Wall St thinks of Marriott’s continued pursuit of Starwood when you see what happens to its share price every time a new piece of information about the deal emerges. When it looks like Marriott is in the driving seat its share price dips and, when it looks like its takeover of Starwood is in danger of failing, its share price rises (up almost 4% at the time of writing).

Wall St. thinks that Marriott is already overpaying if it succeeds with its current bid so it’s probably not going to like it if Marriott bids again at a yet higher level. I suspect we’ll know what it plans to do before the week is up.