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Anbang's Starwood retreat is setback for China's M&A campaign
[NEW YORK] Anbang Insurance Group Co's unexpected withdrawal this week of its US$14 billion offer to buy Starwood Hotels & Resorts Worldwide Inc is a wider blow to the unprecedented drive by Chinese companies to acquire North American and European assets.
Fresh disclosures by Starwood on Friday showed how Anbang's hard-charging chairman Wu Xiaohui backed out of the deal even after calling Starwood chief executive Thomas Mangas as early as March 29 to assure that the Anbang consortium needed "a couple of days" to finalize its proposal.
Instead, on the afternoon of March 31 a representative of Anbang consortium's legal counsel Skadden, Arps, Slate, Meagher & Flom LLP delivered the unexpected news to Starwood's legal counsel Cravath, Swaine & Moore LLP that the Chinese-led consortium is abandoning the multi-billion dollar bid for Starwood.
That brought down the curtains on two weeks of high drama during which Anbang and its consortium partners JC Flowers and Chinese private equity firm Primavera Capital came within striking distance of owning some of the world's best known hotel brands including Sheraton and Westin hotels.
"Though Anbang has decided to withdraw from the Starwood situation, don't yet count it out," Primavera chairman Fred Hu told Reuters.
From semiconductors and industrial equipment, to financial services and real estate, China's insatiable appetite for Western companies has pushed the country's announced outbound cross-border M&A to US$101.1 billion year-to-date, nearly surpassing the full-year record of US$109.5 billion set last year.
Yet Anbang's abrupt move, which came after Starwood said on Monday that the Chinese insurer's latest offer was "reasonably likely" to be superior to a cash-and-stock deal with Marriott International Inc, added fuel to concerns that many Chinese companies may not be able to deliver on their acquisition expectations.
"To succeed in the US, Chinese companies will have to adapt to American styles of governance and transparency. It will be difficult to close mega deals without a more open style, so we may see more modest deals until China changes," said Erik Gordon, a professor at the University of Michigan's Ross School of Business.
To be sure, the largest M&A deal of this year thus far globally is by a Chinese company: China National Chemical Corp's agreement to acquire Swiss seeds and pesticides group Syngenta for US$43 billion.
Several Chinese companies, however, are having trouble convincing Western peers that they are a credible M&A counterparty.
Earlier this week, for example, US gene-sequencing products maker Affymetrix Inc rejected an offer by some of its former executives that was financed by a Chinese investment firm, even though they offered more money than an existing deal with Thermo Fisher Scientific Inc, on the basis of financing and regulatory risks.
Anbang's case could make corporate boards in the United States and Europe more skeptical about the ability and motives of Chinese buyers, investment bankers and lawyers said.
CONCERNS OVER STARWOOD'S INTENTIONS
Starwood had declared Anbang's previous US$78 per share cash offer superior to Marriott's on March 18. This meant that Starwood deemed it to be fully financed, and that it expected it to clear the Committee on Foreign Investment in the United States, an interagency panel that reviews deals to ensure they do not harm national security.
Marriott, however, raised its bid on March 21, and Starwood responded with a new US$82.75 bid disclosed on March 28. Anbang was expected to firm up that offer in order for Starwood to deem it superior.
Anbang said on Thursday that it withdrew its offer due to "market considerations", without elaborating. One of Anbang's private equity partners, Primavera chairman Hu, said Anbang walked away to avoid a protracted bidding war, even though Marriott had not disclosed a higher offer.
"We have little independent insight into what happened, but based on what Starwood has told us, Anbang did not deliver the same kinds of undertakings or arrangements that would have allowed the Starwood board to conclude that they were credible at US$82.75," Marriott chief executive Arne Sorenson told investors and analysts on a conference call.
Anbang became concerned that Starwood had no intention of declaring its latest offer superior and was stalling for time for Marriott to come in with a new offer, according a source close to Anbang's consortium.
Sources close to Starwood, however, said Anbang did not deliver the assurances on financing its latest offer it had said it would on Monday, and had since had no communication with Starwood until its withdrawal on Thursday.
Chinese financial magazine Caixin reported last month that China's insurance regulator would likely reject a bid by Anbang to buy Starwood, since it would put the insurer's offshore assets above a 15 per cent threshold for overseas investments.
Defending Starwood decision to declare Anbang's first bid as superior, Starwood chief executive Mr Mangas said he had found both Anbang and its chairman Wu to be "very credible".
"They moved mountains to persuade our board. They moved quickly and were incredibly shrewd in how they worked with us to get a deal done quickly," Mr Mangas said.