Setting The Odds on Marriott's Next Moves in The Starwood Merger
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A Chinese consortium led by the Anbang Insurance Group is giving Marriott International a run for its money in the two potential buyers' ongoing battle to acquire Starwood Hotels & Resorts Worldwide.
The former emerged as a serious player earlier this month with a $13 billion takeover offer for Starwood that slammed the brakes on Marriott's planned acquisition of the Stamford, Connecticut-based company. Nonetheless Marriott returned with an offer that valued Starwood at $13.6 billion and the two companies agreed to an amended merger last week.
However the most recent $14 billion offer from the consortium has once again thrown the future of a potential Marriott-Starwood merger up in the air.
So what possible scenarios are we looking at, and what are the odds of each coming to fruition? Here we'll review Marriott's options moving forward and predict the odds of each happening.
Scenario One: Wait and See
Since Starwood's board of directors is currently in discussion with the consortium, there's no guarantee that a superior proposal will emerge.
Plus, even if Starwood decides to accept a superior binding offer from the consortium, the deal will still have to clear all of the necessary hurdles. For example, the Anbang-led consortium will need to clear regulatory obstacles in China and Starwood's stockholders would also have to approve.
What's more, Marriott revealed Monday that it still believes its latest offer to Starwood provides greater long-term value to the company's stockholders, even if the cash per share offer isn't as high.
Therefore, the Bethesda, Maryland-based company's latest offer could still prevail or it could ultimately emerge as the best deal in a scenario in which the consortium's winning bid fails to achieve the necessary approval.
That said, the wait and see approach appears to be the most likely.
Percentage Odds it Will Happen: 50 percent
Scenario Two: Come Back With Another Offer
Considering Marriott has reaffirmed its commitment to acquiring Starwood in the wake of the consortium's most recent offer, this route is possible although unlikely.
By offering an additional $1.4 billion for Starwood earlier this month in wake of the consortium's original takeover offer, Marriott sent a message that it has strong interest in the potential of forming the world's largest hotel company. But many financial analysts appear to be in agreement that Marriott lacks the funds to compete with Anbang and company.
While there's undoubtedly a limit to what Marriott could and would offer, it does appear determined to present the best offer and finish what it started last fall.
Percentage Odds it Will Happen: 20 percent
Scenario Three: Walk Away
If Starwood winds up moving forward with a superior binding offer from the consortium, Marriott could take its offer off of the table and earn a hefty payday.
Starwood would have to pay out a $450 million termination fee to Marriott.
While that figure is nothing to sneeze at, the one-time payment pales in comparison to the potential immediate and long-term benefits of a Marriott-Starwood merger. An acquisition of Starwood would set up Marriott to become the world's largest hotel company, so there's a significant opportunity that the company would be giving up by walking away from its current deal.
It probably won't be Marriott's first choice, but walking away is a real possibility if the consortium can deliver on its latest offer.
Percentage Odds it Will Happen: 30 percent
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