Starwood Has A New Bidder – Marriott Takeover In Doubt

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In news that’s certain to give hope to Starwood’s top-tier elites, the hotel group has announced that, on 10 March,  it received an “unsolicited acquisition proposal” from a consortium of companies to purchase all the outstanding shares of Starwood for a 100% cash consideration.

Marriott’s take over of Starwood was announced on 16 November 2015 and, while Marriott’s bid came as a bit of a surprise at the time, things have appeared to be going smoothly so far…until now.

Marriott’s Offer To Starwood Shareholders

The Marriott offer to Starwood’s shareholders is a stock and cash offer which would see Starwood’s current owners receive 0.92 Marriott shares and $2.00 in cash for each share held in Starwood.

Based on Marriott’s 20-day volume weighted average price as of 11 March, Starwood shareholders can expect to receive approximately $63.74 per share (including the $2.00/share cash portion of the offer).

In addition to the above, Starwood shareholders will receive a payment of around $5.50 per share relating to the spin-off off the Starwood Timeshare business and subsequent takeover by Interval Leisure Group/

The New Counter-Offer To Starwood’s Shareholders

Since the Marriott takeover was announced there have been a few murmurings about how much Marriott is proposing to pay for the company with a number of voices claiming that Starwood was being undervalued.

The problem with that sentiment is that a corporation is really only worth what someone is prepared to pay for it and while there were definitely other suitors for Starwood (Hyatt being one of them), Marriott was the one suitor that came up with a figure and overall offer that the Starwood board were happy to support.

Well, now there’s a new offer on the table.

Starwood says that a consortium of companies have come forward with an offer of $76 per Starwood share, to be paid wholly in cash, for the outstanding shares of common stock in the hotel chain.

In addition, Starwood shareholders would still get the $5.50/share relating to the spin-off and sale of the Starwood Timeshare business.

Based on Marriott’s 20-day volume weighted average price as of 11 March, that’s a 19% increase in purchase price.

What Happens Now?

As part of the deal struck with Marriott, Starwood has a waiver which enables the board of Directors to entertain other offers and to provide due diligence information to other parties should they show an interest in bidding for the hotel chain.

The Marriott waiver expires at 11:59 pm Eastern Time on March 17, 2016 (Wednesday).

Starwood’s Board of Directors is saying that, for the time being, it has not changed its recommendation to Starwood shareholders and it still supports the Marriott takeover. But that’s just for now it has confirmed that discussions with the Consortium commenced on March 11, 2016.

Per Starwood:

The Board, in consultation with its legal and financial advisors, will carefully consider the outcome of its discussions with the Consortium in order to determine the course of action that is in the best interest of Starwood and its stockholders. The Consortium has not completed diligence and there are a number of matters to be resolved in the Consortium’s proposal. There can be no assurance that discussions will result in a binding proposal from the Consortium or that a transaction with the Consortium will be approved or consummated. Starwood does not intend to comment further on its discussions with the Consortium prior to the expiration of the waiver period.

Bottom Line

There are still a lot of unknowns in this picture – like who makes up the consortium, what are their plans for Starwood and what will the consortium think when they’ve had a chance to do their due diligence on Starwood – but this is still a significant hiccup in Marriott’s so-far-smooth takeover of Starwood.

A 19% premium to Marriott’s offer is a huge amount of money to Starwood shareholders and when you combine that with the fact that the Consortium’s offer is 100% cash (and therefore guaranteed) this must be a very tempting offer for shareholders.

It will be interesting to see the Market’s reaction to this news when Wall Street opens later today – specifically with regards Marriott’s share price (as that’s what forms the overwhelming basis of its offer to Starwood).

Will  the Consortium’s offer stick after due diligence has been completed? Will Marriott come back with an improved offer? And will Starwood’s board of Directors change their recommendation? These are all things we’ll find out in time but, for now, one thing is for sure: The happiest people around will be Starwood’s shareholders, closely followed by the hordes of Starwood elites that have been decrying the union with Marriott since it was fist mentioned in November.

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