(TRUNEWS) The bidding war for Starwood Hotels & Resorts between strategic buyer Marriott International and Chinese financial buyer Anbang Insurance Group has raised worries that a 2007-style economic crash could be on the horizon.
Anbang Insurance Group, a major Chinese life insurance provider, led a consortium of investors to make an offer of $12.8 billion on March 14th for Starwood, the operator of Westin, W and Sheraton. This bid beat out Marriott who had offered a $10.8 billion cash-and-stock merger 5 months earlier. Marriott has since raised their offer to $13.6 billion, amending their merger agreement Monday to reestablish standing as the ”Superior Proposal.”
But what has specifically raised red flags around this deal are the significantly overpriced offers Anbang has made acquiring U.S. companies previously, and the lack of what would be considered strategic motivations for the purchase.
For example, in Anbang’s deal in October 2014 for the Waldorf Astoria they paid $1.95 billion, a price the NY Times wrote was a record for a hotel in New York. Anbang has since acquired 717 Fifth Avenue for $415 million and Strategic Hotels & Resorts for $6.5 billion, the latter closing for almost $500 million more than what Blackstone paid for it only three months earlier.
This history of seemingly reckless and poorly advised investments have left many wondering why consortium partners J.C. Flowers & Company and the Primavera Capital Group have taken the risk to capitalize another high priced offer.
This concern is further compounded by the fact that Anbang has no previous experience in the hotel industry, where as their competitor Marriott clearly qualifies as a strategic buyer.
To be considered a strategic buyer, an acquiring company should be able to reap operating efficiencies or other benefits from the merger of assets. This is often referred to by deal makers as “synergies.” In Anbang’s case, they much closer resemble a “financial buyer”, because they see the acquisitions as more of a commoditized asset than an additional expansion to service capabilities.
This is evident in Anbang’s explanation for the Starwood purchase, which they said was part of a diversification strategy. The NY Times noted that based on their comments, the company seems to view global real estate as a high-yielding asset that will allow the company to diversify its holdings out of China.
The accelerated flight of capital out of China by both companies and private individuals has been thoroughly documented by many over the last year. As has the acquisition of notable U.S. industries and establishments, such as Chongqing Casin Enterprise Group’s bid in February for Chicago Stock Exchange.
Anbang alone has attempted to buy more than $20 billion worth of hotel properties in a year.
The underlying issue however is that the last time deals began to be made inside the U.S. with this rationale, versus developing synergistic relationships where companies grow and provide greater jobs and opportunities, the entire financial system buckled under a credit bubble.
London buses pass ‘Le Meridien Piccadilly’ hotel, owned by Starwood Hotels, in Leicester Square in central London March 4, 2014. REUTERS/Toby Melville
The post The Anbang canary: Equity feeding frenzy warning of 2007 crash appeared first on TRUNEWS with Rick Wiles.
from TRUNEWS with Rick Wiles http://ift.tt/1UN897z
via IFTTT
No comments:
Post a Comment