Rocky road for Starwood, Marriott and Anbang

Earlier this week, we wrote about Anbang, a Chinese insurance group, leading a consortium to acquire Starwood, which may break the arrangement Starwood has with Marriott for the latter to acquire Starwood. Here's the latest on that, which in simple terms, is that Starwood may favourably consider Anbang's proposal.

While US securities laws aren't my strong suit, here's what we all understand:

• Starwood has signed a deal to accept Anbang's offer, conditionally (as reported by CNBC).
• This is based on the assertion that, as per the terms of the Starwood-Marriott deal, Anbang's offer is a "superior proposal" to Marriott's offer.
• The conditionality is dependent upon Marriott to match Anbang's offer or make a further "superior proposal".
• Starwood must negotiate in good faith, any such counter proposal from Marriott.

Here's an excerpt from Marriott's press statement on the developments:

Marriott International, Inc. (NASDAQ: MAR) has been informed by Starwood Hotels and Resorts Worldwide (NYSE: HOT), and Starwood has announced publicly, that the Starwood Board of Directors has determined that it considers an Anbang consortium proposal to acquire Starwood to be a “Superior Proposal” to Marriott’s existing merger agreement with Starwood. 

Starwood has further informed Marriott that it intends to terminate the merger agreement with Marriott unless Marriott and Starwood agree on revisions to their merger agreement that Starwood’s board of directors determines to be superior to the Anbang proposal. 

Under the terms of Marriott’s merger agreement with Starwood, Marriott has the right to propose revised terms and Starwood must negotiate in good faith with Marriott to discuss any such proposed revised terms, for a period of five business days ending on Monday, March 28 at 11:59 p.m. ET.  If Starwood terminates the Marriott merger agreement in order to accept the consortium proposal, Starwood must pay Marriott a termination fee of $400 million in cash. 

Marriott continues to believe that a combination of Marriott and Starwood is the best course for both companies and offers the best value to Starwood shareholders.  Marriott is in the process of reviewing the Anbang consortium’s proposal and is carefully considering its alternatives.  The company is considering postponing its Special Meeting of Stockholders which is currently scheduled for March 28, 2016.  Marriott has no further public comment at this time.

And here's Starwood's release:

Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT) (“Starwood”) today announced that it has received a revised binding and fully financed proposal from a consortium consisting of Anbang Insurance Group Co., Ltd., J.C. Flowers & Co. and Primavera Capital Limited(the “Consortium”), that the Starwood Board of Directors, in consultation with its legal and financial advisors, has determined constitutes a “Superior Proposal,” as defined in Starwood’s merger agreement with Marriott International, Inc. (NASDAQ: MAR) (“Marriott”).

Under the terms of the Consortium’s proposal, which contains definitive documentation, the Consortium would acquire all of the outstanding shares of common stock of Starwood for $78.00 per share in cash, an increase from the $76.00 per share proposal made by the Consortium on March 10, 2016. Pursuant to separate agreements entered into by Starwood, Starwood stockholders would additionally receive consideration in the form of Interval Leisure Group (“ILG”) common stock from the previously announced spin-off of its vacation ownership business, Vistana Signature Experiences, and subsequent merger with ILG, currently valued at approximately $5.67 per Starwood share, based on the 20-day VWAP (volume weighted average price) of ILG common stock ending March 17, 2016. On this basis, the Consortium proposal and the ILG transaction have a current value of $83.67 per share. The Starwood Board believes that the binding and fully financed proposal from the Consortium provides a high degree of closing certainty.

Under the terms of the merger agreement with Marriott, Starwood stockholders would receive 0.92 shares ofMarriott International, Inc. Class A common stock and $2.00 in cash for each share of Starwood common stock. Based on Marriott’s 20-day VWAP ending March 17, 2016, the merger transaction has a current value of$65.33 per Starwood share, including the $2.00 cash per share consideration. Starwood stockholders will separately receive consideration from the spin-off of the Starwood timeshare business and subsequent merger with ILG of approximately $5.67 per Starwood share, based on the 20-day VWAP of ILG common stock endingMarch 17, 2016. On that basis, the merger with Marriott and the ILG transaction have a current value of $71.00per share.

On March 18, 2016, Starwood notified Marriott that Starwood had received the binding proposal from the Consortium that Starwood’s Board has determined that the Consortium’s proposal constitutes a “Superior Proposal” and that Starwood’s Board intends to terminate the Marriott merger agreement and enter into a definitive agreement with the Consortium. Consistent with the terms of the Marriott merger agreement, Marriotthas the right until 11:59 p.m. ET on March 28, 2016 to negotiate revisions to the existing merger agreement between Marriott and Starwood so that the proposal from the Consortium no longer constitutes a “Superior Proposal”. Starwood will negotiate in good faith with Marriott during this period, and the Starwood Board will consider in good faith any changes to the Marriott agreement that Marriott may propose during this period.

Starwood is not permitted to terminate the Marriott agreement to enter into the Consortium’s binding agreement unless the Starwood Board has determined that the Consortium’s offer continues to be a “Superior Proposal” once the negotiation period with Marriott has concluded, and taking into account any revisions to the existing Marriott agreement that are proposed by Marriott during this period. The Consortium has confirmed that its offer will remain outstanding until the expiration of Marriott’s negotiation period.

In light of these developments and the resulting need for Starwood to be able to provide sufficient time for the filing or mailing of additional information regarding these developments to its stockholders, Starwood is postponing its Special Meeting of Stockholders, which was scheduled to be held on March 28, 2016, to a date that we will establish after consultation with Marriott. Starwood’s Board has not changed its recommendation in support of Starwood’s merger with Marriott.

It is interesting to note the last sentence, that Starwood's Board has not changed its recommendation in support of Starwood's merger with Marriott. While of course, it does acknowledge that Anbang's offer is a "superior proposal", nonetheless.

This is a developing story, so stay tuned, folks!

As a matter of curiosity, where do you stand on the question of who should acquire Starwood - Marriott or Anbang?