R.F. Lafferty Says China Consortium Bid For Starwood Trumps Marriott Offer By 15%

R.F. Lafferty said the bid from China's Anbang Insurance Group for Starwood Hotels & Resorts Worldwide Inc HOT trumps the offer of Marriott International Inc MAR by 15 percent.

The offer from the Anbang includes $76 per Starwood share in cash and Interval Leisure Group, Inc. IILG stock, valued at this time around $5.50 per Starwood share. Total current value of the offer is $81.50 per share, or $13.9 billion.

Related Link: Watch Hotel Sector Following News Of New Bid For Starwood

In November, Marriott agreed to buy Starwood for $12.2 billion. The offer included 0.92 Marriott shares for each Starwood share ($70.08 per share), $2 cash per Starwood share and $7.80 a share equivalent value for Vistana spinoff (based on IILG 20-day VWAP ending November 13, 2015). That puts the total value at $79.88 at the time of striking the deal.

Following is the calculation from analyst Robert Sassoon that shows where the offer of Marriott currently stands:

• "0.92 Marriott shares for each Starwood share (with reference to prevailing MAR share price of $68.89 -$1.08 billion);
• "$2 cash/ Marriott share ($340 million);
• "$5.50 equivalent value for Vistana spin-off (based on the 20-day VWAP of ILG common stock ending March 11, 2016 -$935 million)"

So, Sassoon's calculations put the total current value of Marriott offer at $70.88 per Starwood share ($12 billion). This is 15 percent lower than Anbang offer.

Starwood would have to pay a termination fee of $400 million (equivalent to $2.35/Starwood share) to Marriot if the company decides to be acquired by Anbang or any other rival bidder.

"Even after taking into account the penalty ($400 million termination fee if Starwood accepts Anbang's offer), I calculate that the net offer of $79.15 ($81.50–$2.35) is still ~12 percent above the current MAR offer. It remains to be seen if MAR will proceed with a counterbid before March 17," Sassoon wrote in a note to clients.

"HOT will certainly have to give serious consideration to this superior offer," Sassoon added.

"It is noteworthy that Anbang is reported to have only recently agreed to buy Strategic Hotels and Resorts Inc BEE from Blackstone for $6.5 billion (Blackstone itself had only purchased formerly listed BEE for ~$6 billion in December 2015)."

"The latest Anbang move reaffirms a recent trend of China companies becoming more aggressive regarding outside M&A, especially in the United States, due to global market volatility, strong dollar, diversification of portfolio and slowdown in China. Most recent examples include Chinachem's $43 billion for Syngenta AG (ADR) SYT and Zoomlion's unsolicited $3.3 billion bid for Terex Corporation TEX.

At Time Of Writing...

• Shares of Marriott were up 3.03 percent at $70.98.
• Shares of Starwood were up 8.09 percent at $76.12.

• Shares of Marriott were up 3.03 percent at $70.98.
• Shares of Starwood were up 8.09 percent at $76.12.