Anbang gives up on $14bn Starwood deal

Signage is reflected in a window of the W Hotel Hollywood in Hollywood, California, U.S., on Monday, Oct. 26, 2015. Starwood Hotels & Resorts Worldwide Inc., owner of the Sheraton and W brands, is scheduled to release earnings figures on October 28. Photographer: Patrick T. Fallon/Bloomberg©Bloomberg

An investor consortium led by China’s Anbang Insurance has lost the bidding war for Starwood Hotels & Resorts, after failing to demonstrate that it had the financing in place to back up its latest $ 14bn offer, according to a person directly involved.

As a result, Starwood is set to confirm its previously agreed cash and stock deal with Marriott International as soon as later on Thursday, two people close to the matter said.

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In a statement on Thursday evening, the Anbang-led group said: “Due to various market considerations, the consortium has determined not to proceed further.”

It thanked Starwood’s management and advisors for their support through the process, adding that the company had “met many of our acquisition criteria, including the ability to generate consistent, long-term returns over time.”

Earlier this week, Starwood said it was still recommending Marriott’s offer even as it negotiated the “non-price terms” of what it thought was likely to lead to a superior binding offer from Anbang.

The Anbang consortium, including China’s Primavera Capital and US private equity group JC Flowers, raised its terms twice over the Easter weekend, from $ 78 per share to $ 82.75. Its US target had been comfortable that it had the funding for the original offer but was pressing for confirmation that it could fund the increased terms.

The end of the Chinese insurer’s role in one of the most contentious M&A battles in recent memory comes only days after Anbang sweetened its all-cash offer for Starwood, owner of the W Hotels, Sheraton and St Regis brands.

Marriott’s offer of $ 21 in cash and 0.80 of its own shares for each Starwood share was worth about $ 82 per share after Marriott’s shares fell almost 5 per cent on Thursday.

Starwood’s shares fell as much as 5.3 per cent to $ 79 in extended trading. They had been trading above both suitors’ offers, because of a side deal with Interval Leisure Group to sell Starwood’s timeshare business for about $ 5.83 a share in cash. That side deal remains in place.

Anbang’s $ 6.5bn deal for Strategic Hotels, a collection of 16 prime US luxury hotel properties owned by US private equity group Blackstone is still on, according to a person close to that deal. Blackstone declined to comment.

Anbang’s pursuit of Starwood came into question last week after a Chinese news outlet reported the country’s insurance regulator may invoke a rule that restricts domestic companies from investing more than 15 per cent of their total assets abroad.

But those doubts faded as Starwood said this week that Anbang’s $ 82.75 a share all-cash offer represented a “superior proposal” to Marriott’s, and that the two companies would work on negotiating a deal.

The news was first reported by the Wall Street Journal.

Founded 12 years ago as a provincial car and property underwriter, Anbang had been on a leverage-fuelled shopping spree, spending nearly $ 2bn on New York’s Waldorf Astoria. The company, led by chairman Wu Xiaohui, is said to have its sights on trophy assets in 30 countries.

Its ambitions had fed Wall Street hopes of a surge of Chinese dealmaking. Including Anbang’s offer for Starwood, Chinese bidders accounted for $ 101bn in announced deals in the first quarter of this year, or 15 per cent of all global mergers and acquisitions – the country’s largest quarterly share of M&A activity on record.

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