Starwood Investors Dancing As Competing Bids Drive Up Value

| About: Marriott International, (MAR)

Summary

Anbang ups bid to $88.66 per share a $15 billion valuation.

Marriott's recent bid was $14.4 billion.

Anbang offer is all cash vs. cash and stock from Marriott.

Starwood Hotels (NYSE:HOT) investors are likely dancing in the streets as the bidding war for the hotel chain continues to heat up. Starwood brands include Sheraton, Westin, Four Points, and others is a well established brand with impressive assets around the world.

Last November it appeared that Marriott (NASDAQ:MAR) and Starwood came to terms on a deal that carried a per share stock value of $79.88. That deal used cash as well as Marriott stock to arrive at the value. A dip in the Marriott stock price brought down the value of the deal and this opened the door for a competing bid.

In March of this year the Anbang Insurance company and its partners put an all cash offer on the table of $76 per share. The offer was quickly raised to $78 per share. Within a few days of the Anbang news Marriott countered with a deal that placed the per share deal at over $79 per share.

Anbang loosened up its purse strings and sweetened its offer to $82 per share and now has shifted gears again with an offer of over $88 per share. The latest offer includes $82.75 in cash and $5.91 in stock for a spin-off of a vacation business.

Many analysts believe that Marriott may not be able to top the Anbang offer. The biggest issue is that the stock of an acquirer often depresses when a deal like this is made. With a large component of the Marriott offer tied to stock, there is a volatility in the equation that may favor a cash buyer with deep pockets.

The bidding war has been good for Starwood shareholders. Just a few weeks ago the stock was trading at about $70 per share. The stock now sits at an impressive $84 per share. This represents a 20% jump in a matter of just over 10 trading sessions.

Investors may be in a bit of a quandary at this stage. Is it time to take profits off of the table, or will Marriott swoop in with yet another offer? Shareholders of both Marriott and Starwood will be voting on matters April 8th and there is a lot for each side to consider. Marriott has stated that it is committed to getting a deal done. Marriott, perhaps at about the peak of its ability to make an offer that is sensible is now selling the idea that a merged Marriott and Starwood brand is better for shareholder value over the long term.

Marriott International, Inc. today reaffirmed its commitment to acquire Starwood Hotels & Resorts Worldwide, Inc., confident that the previously announced amended merger agreement is the best course for both companies. The combined company will offer stockholders significant equity upside and greater long-term value driven by a larger global footprint, wider choice of brands for consumers, substantial revenue synergies, and improved economics to owners and franchisees leading to accelerated global growth and continued strong returns.

Essentially Starwood is faced with two compelling choices. A ton of cash up front vs. mostly stock and the promise of longer term value. It may well be argued that a combined Marriott and Starwood offers greater control over the marketplace, pricing stability, and this healthier long term returns. Then again, sometimes cash is king. It will be interesting to see if Marriott can keep its dance partner engaged over the next week or so. Anbang is certainly pulling out all the stops to woo Starwood and its investors.

In my opinion, the next week or is going to be critical for investors in Starwood and Marriott. I do not see Starwood stock moving down at this stage, and feel that Marriott is going to be forced to up the ante. It will be interesting to see if the peak in the Starwood stock price happens at this time next week. If I were a stockholder, I would be tempted to take some money off of the table at anything over $89 per share. Stay Tuned!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.