UPDATED: Anbang Out; Marriott-Starwood Merger Back on Track

NEW YORK—The proposed merger between Starwood Hotels & Resorts Worldwide, Inc. and Marriott International, Inc. is back in play after the consortium consisting of Anbang Insurance Group Co., Ltd., J.C. Flowers & Co. and Primavera Capital Limited informed Starwood that, as a result of market considerations, it has withdrawn its non-binding proposal to acquire all of the outstanding shares of common stock of Starwood for $82.75 per share in cash and does not intend to make another proposal.

“We were attracted to the opportunity presented by Starwood because of its high-quality, leading global hotel brands, which met many of our acquisition criteria, including the ability to generate consistent, long-term returns over time. However, due to various market considerations, the consortium has determined not to proceed further. We thank the Starwood board, management team and its advisors for their efforts and support throughout this process,” the consortium said in a statement.

In a presentation to investors this morning at the New York Marriott Marquis, Marriott CEO Arne Sorenson and Starwood CEO Thomas B. Mangas expressed optimism about the deal going forward, while noting it still needs to meet approval from both entities’ shareholders. Shareholder meetings are slated for April 8.

“We’re absolutely thrilled to be here. We have zero buyer’s remorse,” said Sorenson. “We’re excited to be moving forward with the approval of this transaction with the shareholder meetings scheduled for next Friday and then to move quickly toward closing thereafter, hopefully still mid-2016.” 

Starwood’s board of directors continues to unanimously support the existing merger with Marriott International, which will create the largest hospitality company in the world, according to the company.

While the Anbang consortium entered the scene well after Marriott and Starwood set the deal in motion last year, Sorensen stressed to investors this morning, “We have the only binding deal with Starwood. Most of the conditions prior to closing have been satisfied; there are a few that are still outstanding. We’re waiting for EU [European Union] approval, for example, on anti-competition grounds. We need the same thing from China, Starwood needs to complete its time-share spin-off. These are a few of the things that are underway but, because our market-share numbers, for example, in Europe and China are quite light we would not expect those to be meaningful issues.

“We continue to believe that what we can create by pulling these two companies together is extraordinarily powerful,” said Sorenson  

“I want to say how excited we are for this combination,” Mangas told investors. “We absolutely believe in [it]. We saw as we began our strategic review process back in April almost a full year ago that a combination with Marriott can yield significant and probably the greatest benefits to all our constituents: our guests, our owners, our associates and our shareholders.”

Under the terms of the amended merger agreement, as announced on March 21, Starwood shareholders will receive $21 in cash and 0.8 shares of Marriott Class A common stock for each share of Starwood common stock. Excluding Starwood’s timeshare business, the transaction values Starwood at approximately $13.3 billion ($77.94 per share), consisting of $9.7 billion of Marriott stock, based on the closing price of $71.18 on March 31, and $3.6 billion of cash, based on approximately 170 million outstanding Starwood shares. Starwood shareholders will own approximately 34% of the combined company’s common stock after completion of the merger, based on current shares outstanding.

Bruce Duncan, chairman of Starwood’s board, stated, “Throughout this process, we have been focused on maximizing stockholder value now and in the future. Our board is confident this transaction offers superior value for Starwood’s stockholders, can close quickly, and provides value-creation potential that will enable both sets of stockholders to benefit from future financial performance. We continue to be very excited about the combination of our two companies and are committed to completing this deal in an expeditious manner. We are confident Starwood stockholders will support a merger that will create the world’s best and biggest hotel company and which offers significant long-term upside for not only our stockholders, but also our company and associates.”

Starwood stockholders will separately receive consideration in the form of Interval Leisure Group common stock from the spin-off of the Starwood timeshare business and subsequent merger with ILG, currently valued at $6.13 per Starwood share, based on ILG’s share price as of market close on March 31. The amended agreement and the ILG transaction have a combined current value of $84.07 per share of Starwood common stock.

“We are excited to be part of the world’s largest hotel company with an unparalleled platform for global growth. The existing merger agreement provides substantial value to our stockholders through significant upfront cash consideration and long-term upside potential from projected shared synergies, including $250 million in cost synergies and significant revenue synergies, as well as ownership in one of the world’s most respected companies,” stated Mangas.

Lazard and Citigroup are serving as financial advisors and Cravath, Swaine & Moore LLP is serving as legal counsel to Starwood.