The merger soap opera between Marriott (MAR 0.88%) and Starwood Hotels (NYSE: HOT) finally seems to be coming to a close. It certainly didn't lack for drama, particularly when China's Anbang Insurance submitted an apparently winning offer, then withdrew from the process.
In this clip from The Motley Fool Money radio show, Chris Hill, Jason Moser, and James Early talk about possible reasons why the Asian conglomerate retreated, and how the Marriott-Starwood fusion will likely serve both companies much better in the long run, even if Anbang's bid was higher.
A transcript follows the video.
This podcast was recorded on April 1, 2016.
Chris Hill: Last week, Marriott was going to buy Starwood Hotels for $13.6 billion in cash and stock. Earlier this week, Anbang Insurance from China came in with a higher bid, only to drop that bid altogether just a few days later. What in the world is going on, Jason? This dance has been happening back and forth for a few months now, and it really did look like Anbang had the winning bid, and then they just dumped it!
Jason Moser: Yeah, this has turned into quite the soap opera. I think, honestly, that Starwood is probably happy that this is working out the way it did. So, we look at Starwood and think, OK, management certainly has the responsibility to consider every offer on the table. And it would seem, on the surface, that accepting the highest bid makes the most sense, that it would be the most responsible thing to do. But, maybe not, if you look at this from a longer-term perspective. So, I think it makes more sense for Starwood to be a part of Marriott, as opposed to a part of the Anbang consortium, because there wasn't really a hotel specialty dynamic to that relationship, whereas obviously, that is just what Marriott does.
I do think this really, also, is a testament -- it shows the value in knowing where you stand in a negotiation process. I mean, it's one thing if you're Radio Shack and you're trying to liquidate assets. It's an entirely different thing if you're Starwood and you know you have this really valuable portfolio of brands in a growing and global industry that's creating a little bit of a bidding war here. But, ultimately, I think it's going to work out OK. It's going to force Marriott to pay, I think, about a billion dollars more than they initially offered from the very beginning, but it looks like Marriott management is very excited to get this thing moving forward.
James Early: And it's just an issue of the Chinese government, right? They would have taken the bid, had the government not put the kibosh on Anbang.
Moser: I think it ultimately came down to the fact that there was going to be more red tape involved than they wanted to deal with. Something in regard to the American ownership of a Chinese-based company, it could not exceed a certain percentage. Anbang is notorious for having a very... let's just say 'tough to understand' ownership structure.
Early: Yeah. They're the Pac-Mans of 2016, buying everything they can eat.
Hill: Marriott's shares fell when this news broke, and I'm wondering if at least some investors look at this and think, "You know what? We don't want Marriott buying Starwood at this price, they're going to pay too much for it."
Moser: I could see that if Marriott came back with another deal. I mean, we look at Marriott and Starwood, both down for the week after everything is said and done. Starwood, that's more understandable, because honestly, the stock fell because this higher bid is going to be thrown to the side. But, I think, again, we have to look at this from a little bit of a longer-term perspective and understand that these are two very good operators in a very relevant industry, where scale really matters. They're going to be able to take advantage of a lot of cost efficiencies. And I think that shareholders of Marriott will be glad this all works out here over the long haul.