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Déjà Wu

14 March 2016 By Kevin Allison, Richard Beales

Anbang Insurance is in what may be an expensive hurry. The Chinese insurer is leading a consortium that has made a $13 billion cash offer for Starwood Hotels & Resorts Worldwide – potentially breaking up a sale to Marriott International. That follows another big U.S. hotel industry acquisition at the weekend and the purchase of New York’s Waldorf Astoria in 2014. It’s hard to see how they can all meet Anbang Chairman Wu Xiaohui’s financial criteria.

Monday’s news of Anbang’s offer came just two weeks before Starwood and Marriott shareholders are due to vote on the cash-and-shares deal they struck in November. Anbang has also agreed to buy real-estate heavy Strategic Hotels & Resorts for $6.5 billion, Reuters reported – three months after Blackstone took the company private for around $6 billion.

Wu told a Harvard recruitment fair last year that he targets investment opportunities priced at less than book value and offering a return on equity above 10 percent. The first criterion is nebulous. At $76 per share in cash, Wu is offering about 10 times book equity for Starwood. He is also exceeding the value booked by Blackstone for Strategic Hotels. But that doesn’t indicate whether the prices are sensible or not.

The return part is easier to pin down, at least for Starwood. At Anbang’s offered price for the Sheraton, Westin and W hotel manager’s shares, estimates through 2018 compiled by Thomson Reuters don’t even reach a 5 percent earnings yield. Even on a generous pre-tax measure of EBITDA relative to the full $14 billion value of the offer, including debt, the return would fall short of 9 percent in 2018.

Wu may be thinking much longer term. He may also think Chinese travelers may be more likely to stay in hotels owned by one of their own companies. In addition, there is ambiguity about whether Anbang is engaged in pure investments, Chinese state-sponsored asset gathering or something in between.

Anbang’s play for Starwood is not a done deal – the quarry may find the offer too flaky, Marriott could lift its price, or Washington could interfere. If it does happen, though, the Chinese company’s block booking of U.S. hotels looks to be getting pricey.


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