Who Will Starwood’s New Owner Be?

On Tuesday, a Chinese company called “Anbang Insurance Group” announced that it was making an unsolicited bid for Starwood Hotels, owner of Westin, Sheraton and several other brands. This bid, for just over $81, trumps an offer from Marriott, which is not only valued at about $70 per share but is also to be paid almost entirely in Marriott stock, as opposed to Anbang’s, which is all cash. Most people have never heard of Anbang, but it’s been making quite a splash in the industry, having recently announced the purchase of Strategic Hotels, a real estate investment trust (REIT) that owns several high-end properties, such as the Ritz-Carlton Half Moon Bay or the Montage Laguna Beach.

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The two companies, Marriott and Anbang, are very different. True, each is in the lodging business, but the former simply manages and franchises hotels, while the latter owns them. In other words, Marriott doesn’t own the properties with its names, but takes a fee for running them, using its brands and reservations system. Anbang, on the other hand, actually owns the properties. When things are going well, Anbang makes big bucks. But when the economy is in a downturn, the owners suffer because they have high costs but no revenue. The brand owners like Marriott are a bit steadier through the cycle.

So How Does the Merger Affect Me?

One would think that it shouldn’t matter who owns the company, but each has a different motive. Marriott would be merging Starwood into its existing portfolio. It would eventually end up changing the Starwood Preferred Guest (SPG) program, which I consider to be significantly better than Marriott Rewards (MR). Unfortunately, it is unlikely that Marriott would enhance MR to SPG’s level, leaving only one choice. Anbang, on the other hand, is a private company, which means it has no public shareholders beating down its door for near-term profits.

The Bottom Line

Marriott probably wouldn’t make any changes for a few years, so it may be a moot point, but SPG loyalists would probably be better off under a private owner.

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