Question

US Hotelier and Chinese Insurer Contest Ownership of Starwood In March 2016, struggling US hotel group, Starwood Hotels and Resorts, owner of Weston and Sheraton Hotels, found itself in a bidding war. It had accepted an offer of $10.8bn (€8.1bn, £6.5bn) in cash and stock from US hotelier Marriott International the previous year. Whilst discussing the details of the acquisition, due to close in March 2016, Beijing-based Anbang Insurance Group made an unsolicited offer of $12.9bn. Marriott responded by increasing its offer to $13.6bn and Starwood investors eagerly awaited higher bids.

If Marriott succeeded it would create the world’s largest hotel company with 5500 owned or franchised hotels with 1.1 million rooms under 30 brands. Marriott believed it was a compelling bidder having demonstrated multi-year industry-leading growth, powerful brands and consistent return of capital to shareholders, with shares trading consistently above those of its peers. Having already conducted five months of extensive investigation and joint integration planning with Starwood, including careful analysis of the brand architecture, Marriott was confident it could make annual cost savings of $250m, generate greater long-term shareholder value from a larger global presence and offer wider choice of brands to consumers and improved economics to owners and franchisees.

Little known outside of China before 2013, Anbang Insurance Group originated as a small car insurer, before China’s move to give insurers greater freedom to invest their money. This allowed Anbang to sell investment products and other services, making them major players in real estate. A slowing Chinese economy and devaluing currency encouraged many domestic companies to invest overseas and Anbang then aggressively pursued overseas deals, largely fuelled by selling high yield investment products at home. Having spent $2bn on insurers in Belgium and South Korea, Anbang also made many large US acquisitions including the Waldorf Astoria for $1.95bn, the American insurer, Fidelity & Guaranty Life Insurance ($1.6bn) and the biggest-ever acquisition of American property assets by a mainland Chinese buyer, Strategic Hotels and Resorts ($6.5bn), owner of Four Seasons hotels, the Fairmont and Intercontinental hotels and the JW Marriott Essex House hotel. As a late bidder, Anbang had had little time for in-depth investigation of Starwoods but was making its bid in a consortium that included American private equity firm J.C. Flowers & Company. With close personal links to the Chinese Government, commentators believed Anbang could greatly increase Starwood’s cash reserves.

On 28 March, Anbang raised its bid to $14bn and analysts wondered whether Marriott would be able to raise its offer further as increasing the cash part of its offer could threaten its investment-grade rating and adding more stock would dilute its earnings per share. Marriott’s response was to say that its offer was not just about price. It also questioned whether Anbang had sufficient funds to close the deal and whether the Committee on Foreign Investment (Cfius), which reviews all deals for American companies that involve national security, would intervene as it had with the Waldorf sale, although this had been approved. Starwood properties could be deemed to be near government offices and military bases. This could delay the deal and possibly discourage Anbang’s bid. Commentators also wondered whether they had the skills to manage Starwood as the management team at its Belgian acquisition had left quickly amid complaints about Anbang’s management style.

Questions

1. How do the bidders’ acquisition motives differ?

2. What are the strategic and organisational fit implications of both bids?

Answer 1

Q1

Acquisition is motivated to achieve some of the following tasks.

1) Top line or revenue growth - One of the major reaon to acquite enity is to have improved revenue. This often happens when revenue from existing product line is deteroriating and company is eying for diversification.

2) Technology - This is yet another key factor. An efficient tech company not only enhance revenue by selling evident and easy softwares, providing after services but also help in cost management by reducing redundant manual jobs.

3) Globalisation - This is naive step for the companies seek global expansion with larger customer base. Best way to move forward is to acquire an existing and established enity which not only help in revenue stablisation but also give customers loyalty of a global brand.

Q2

Both of Marriot International and Anbang Insurnace have their different motives. Below are organisational and strategic implications of this acquisition.

Marriot International	Anbang Insurance
1) Having significant prior experience of hotel industry which gives them operation expertise.	1) Don't have any operational experience, recently they bought hotel properties in USA.
2) Would be largest hotel operations, post successful acquisition with over 1.1m rooms globally and over 5500 hotels of differnt brands to match with customer taste.	2) Recent acquistion is there only entart in hotel industry, don't have any impactful history and customer base.
3) They have consistently delivered improved financial results, which means they have investor's confidence in the acquisition	3) Anbang has maid significant gains in China by selling high yield investment products which fuled their growh overseas.
4) They did extensive research on how effective would integrated operations be.	4) They being late entrant, could't validate the benefits / loss that might arise because of this acquisition
5) They measured integration impact by visualising the operations thereby computing $250m annual costs savings	5) There is no integration of efforts for Anbang as they would enter new industry, therefore no cost savings.
6) The acquistion would help them maximising shareholder's wealth through topline and cost savings	6) Relationship with Chienese political parties might help in creating and utilising cash reserves.
7) Bid amount $13.6bn. Bidding higher amount might cause trouble by downgrading of credit rating or higher diluted earnings. Therefore higher capital cost.	7) Bid amount $14bn, however this is in consortium with J.C. Flowers private equity firm who might take benefit fueld by its knowledge of US market and leaving nothing Anbang

Strategical and Organisational implications

1) Marriot don't have to seek the approval from Committee on Foreign Investment which is required by all foreign entities investing in US, thus strategically placed.	1) Might need to seek apporval, howver based on contract terms as this is an acquisition by consortium of a US and Mainland China entity.
2) Location of Startwood property startegically favours Marriot because of its close proximity to Goverment office and miltary bases.	2) Approval to foreign entity can be denied if not delayed for proper due diligence as it will have close proximation of national government offices and military bases. This is primarily due to fear of national security being on risk.
3) Vast experience in hotel industry that too being among the largest goes to support Marriot. They can offer finest customer delight experience gained over a period of time.	3) They had to let their Belgian property go shortly after acquistion as they do not have required skill set to operate in the industry.