When Starwood's big suitor from Beijing came unexpectedly
calling again last month, aiming to consummate China's biggest-ever
purchase of a U.S. company, its proposal eventually included an
extraordinary clause to allay the Americans' wariness.
Anbang Insurance Group Co. had failed last fall to woo Starwood
Hotels & Resorts Worldwide Inc., and Starwood was close to a
$12.2 billion sale to Marriott International Inc. The Chinese firm
was back with an offer eventually reaching $14 billion that
included, said people familiar with the bid, a stunning sweetener:
Anbang and its partners would pay up even if Chinese regulators
blocked the tie-up.
Starwood Chief Executive Thomas Mangas had given his Marriott
counterpart, Arne Sorenson, an early warning. "Our friends in China
have resurfaced," Mr. Mangas told him on a March 11 phone call.
After a flurry of negotiations and counterbids came two days of
radio silence from Beijing. Then Anbang walked away on Thursday,
citing only "various market considerations."
Now Marriott is again the winning suitor in what would make it
the world's largest lodging company.
Anbang's role in one of America's biggest takeover stories of
the past 12 months is part of China's recent shopping binge for
foreign companies. The episode also raises questions about China's
ability to play on the global M&A stage.
Chinese companies, which have long flirted with buying big
Western companies, have turned into voracious suitors this year,
agreeing to $92.3 billion of foreign takeovers in industries from
semiconductors to agriculture, compared with $106.7 billion in all
2015, according to data provider Dealogic. While Chinese companies
have honed their deal-making skills, said bankers and lawyers who
work on the transactions, they still often don't play by
long-established M&A rules.
Other ambitious bidders like Tsinghua Unigroup Ltd., China's
largest chip-design company, for example, have eschewed big Wall
Street banks for deal advice, leading to some mishaps. Tsinghua
Unigroup prepared a $23 billion bid for Micron Technology Inc. last
year, but the U.S. chip maker said it never received an offer. The
Chinese government also plays a bigger role than Western regulators
in many cases even before an offer is made.
In ways small and large, Anbang's approach to Starwood was
unorthodox, from surprise meetings to its shifting offers and a
level of scrutiny of the hotel company's books that to some
involved seemed less intense than expected. Most striking was how
it suddenly dropped away after indicating it was committed to
winning.
In the end, said Fred Hu, Chairman of Primavera Capital Group, a
partner in Anbang's bid, the consortium walked away because the
price got too rich. "It was a simple and prudent commercial
decision."
This account of the Starwood saga is based on interviews with
officials at the companies involved, others close to them and
federal filings.
Anbang's unusual approach began with its first courtship of
Starwood last year. The Beijing company had exploded onto the
international scene by acquiring insurers and hotels globally,
including its $1.95 billion purchase of Manhattan's Waldorf
Astoria. The conglomerate is also a big player at home, with stakes
in Chinese companies ranging from developers and banks to a
traditional Chinese medicine maker and a wind-turbine
manufacturer.
Starwood, which controls the St. Regis, Westin, Sheraton and W
Hotels brands, nearly a year ago said it would "explore a full
range of strategic and financial alternatives to increase
shareholder value," effectively hanging out a for-sale sign. Months
earlier, Starwood CEO Frits van Paasschen resigned amid concerns
over the Stamford, Conn., company's slow growth.
Anbang expressed interest in May, but Starwood officials
couldn't get comfortable that the Chinese company could secure
funding. Anbang and its ownership structure remain murky to many
inside and outside China, unlike Marriott or any other publicly
traded U.S. company.
And Starwood officials saw Anbang Chairman Wu Xiaohui as hard to
read. He called a last-minute meeting at the St. Regis hotel in
Manhattan to discuss Anbang's interest in Starwood the last weekend
of August, even though some at the company and its advisers had
vacation plans they ended up having to change.
Anbang's reasons for pursuing Starwood were never made entirely
clear. In three meetings through autumn, in New York and Chicago,
Mr. Wu expressed interest in a variety of deal options. Among them,
he floated the idea of Anbang's taking a minority stake in
Starwood. But Starwood didn't need cash and preferred a deal for
the whole company.
On Nov. 3, Anbang withdrew its interest during a meeting when
Starwood said it couldn't proceed "without a written offer with
specific financing plans," federal filings show.
Marriott's victory
Marriott emerged victorious that month, a surprise given that
Hyatt Hotels Corp. had been widely expected to prevail.
Starwood executives wondered whether a counter bidder would
emerge, expecting any competing bids would follow a December
regulatory filing that disclosed information a spoiler would find
useful. Such bids would typically have come around January.
Now in March, Anbang was back with its partners, including U.S.
private-equity firm J.C. Flowers & Co., Primavera Capital and
state-owned China Construction Bank Corp., and their record
all-cash offer. China's previous record U.S. purchase was Shuanghui
International Holdings Ltd.'s takeover of Smithfield Foods Inc.
announced in 2013 for about $7 billion including debt, according to
Dealogic.
The timing of the surprise bid was odd, coming barely two weeks
before a scheduled shareholder vote on the Marriott deal with
little time to win over Starwood's board.
Starwood officials were pleased but cautious of Anbang and its
chairman. Still, Anbang's new approach, made March 10, was too rich
to ignore. Starwood's advisers at Lazard and Citigroup Inc. told
Anbang its bid of $76 a share was a good start but not high enough
to displace Marriott. They also wanted proof Anbang had
financing.
Anbang in short order raised the offer to $78 and provided a
letter of credit from China Construction Bank for the full
amount.
Anbang's negotiating approach sometimes confounded Starwood. Mr.
Wu would arrive at meetings, many at The St. Regis, with a team of
about a half-dozen Chinese educated at U.S. business schools. Mr.
Wu served as Anbang's lead negotiator. At times his bankers didn't
speak during entire meetings, they said, and Mr. Wu didn't turn to
them for advice.
Anbang's chairman said he loved Starwood's brands and the cash
flow from hotel management. Anbang had few of the obvious synergies
Marriott offered, but Mr. Wu sketched out a vision that involved
bringing Starwood brands to China's emerging middle class, which is
increasingly traveling. Starwood found the idea of China's booming
travel class appealing, but details on what Starwood's role would
be were scant.
Unknown quantity
Much else about Anbang's plans wasn't clear to the Starwood
team. They didn't know what sort of return Anbang expected on its
investment, or whether it viewed an acquisition as a long-term
proposition. The lack of insight into Anbang's intentions, along
with its opaque ownership, made the buyer's actions harder to
predict.
The bidding war subjected unlisted Anbang, founded in 2004 as a
provincial car insurer, to fresh scrutiny over its political
connections in China, as well as its complex ownership, a web of 39
corporate shareholders ranging from car dealerships to mining
companies. Local media have said some of those firms may have ties
to the family of former Chinese leader Deng Xiaoping, whose
granddaughter married Mr. Wu.
In contrast, Marriott was a known quantity, and a combination
with it would create a hotel company with more than a million rooms
and 30 brands, including Marriott's Ritz Carlton, Courtyard by
Marriott and Residence Inn.
Starwood wanted assurance Chinese regulators wouldn't scuttle
any Anbang agreement, a disaster if it happened after the company
broke off its proposed Marriott marriage.
Starwood and Marriott had obtained the green light for their
deal from antitrust regulators in the U.S., Canada and other
countries. Starwood had little insight into how Chinese regulators
would react to the proposed Anbang deal.
So Starwood and its advisers insisted Anbang agree that a deal
would still close, and the cash would change hands, with or without
Chinese regulatory approval. The Chinese company agreed. That sort
of guarantee is rare and demonstrates the wariness with which some
Western companies approach Chinese bidders and how intensely Anbang
wanted its prize.
On March 18, Anbang put in an binding offer, and three days
later Starwood announced it would spurn Marriott for Anbang's $13
billion bid.
Many investors expected Marriott would walk away and collect its
$400 million breakup fee. It had five business days to respond, and
analysts predicted Marriott would be unwilling to get into a
bidding war with a deep-pocketed Chinese company. They warned the
stock portion of a higher offer could too heavily dilute existing
shareholders' stakes, and borrowing to raise the cash component
could put Marriott's credit rating at risk.
Marriott surprised them with a proposal then valued at $13.6
billion containing more cash than its previous stock-and-cash bid.
Starwood agreed to Marriott's new offer, turning its back on Anbang
in a move announced March 21.
Marriott executives were hopeful but knew Anbang was likely to
counter.
The morning the new deal was made public, Mr. Sorenson was in
Havana as part of President Obama's visit. The Marriott CEO was on
an early-morning call from his hotel room with lodging analysts to
discuss the offer when the phone went dead. For a nerve-racking
minute, he wondered if he had lost the call for good, but it
proceeded.
(MORE TO FOLLOW) Dow Jones Newswires
April 04, 2016 08:35 ET (12:35 GMT)
Anbang came back later that week with an all-cash offer of $81 a
share. Mr. Wu scheduled a meeting in Florida on Easter Sunday,
again irking those at Starwood who had changed their August
vacations.
As before, Starwood leaned on Anbang to make a higher offer, and
Mr. Wu said he would go to $82.75, or $14 billion.
Starwood said it wanted proof of financing and regulatory
approval at the higher offer. This time, that wasn't immediately
forthcoming. Still, Starwood announced the higher bid on March 28,
saying it was "reasonably likely to lead to a superior
proposal."
Marriott considered another bid but knew whatever it could
cobble together wouldn't equal $82.75 in cash. Instead, it began a
lobbying campaign to stress the strategic value of its combination
while raising questions about Anbang.
Marriott issued a press statement saying Starwood investors
should think hard about whether Anbang could close the deal "with a
particular focus on the certainty of the consortium's financing and
the timing of any required regulatory approvals."
Starwood waited for Anbang to agree to its demands and make the
bid binding. Mr. Wu indicated to Starwood officials he might raise
his bid further to knock Marriott out once and for all but needed
to speak to his owner group.
Then, for two days, no one at Starwood heard anything from
Anbang.
Thursday afternoon, Anbang's lawyers at Skadden, Arps, Slate,
Meagher & Flom informed Starwood that the company was walking
away.
"It's great to have clarity," Marriott's Mr. Sorenson said in an
interview on Thursday. "We've been struggling with a lack of
clarity for the last three weeks."
It was especially difficult, he said, because "we had very
little insight into what the competing bidder was prepared to
pay."
Anbang's incursion cost Marriott over $1 billion more than it
had originally agreed to pay for Starwood.
Mr. Hu of Primavera Capital, the Anbang partner, chalked the
episode up as a learning experience. "Some missteps by some players
are just unavoidable," he said. "Nevertheless, it is far too early
to declare Chinese forays overseas will all end in tears. People
who hold such views are either arrogant or ignorant."
Write to Craig Karmin at craig.karmin@wsj.com, Dana Mattioli at
dana.mattioli@wsj.com and Rick Carew at rick.carew@wsj.com
(END) Dow Jones Newswires
April 04, 2016 08:35 ET (12:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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