A Peek At The Fine China: The Industry Mulls Anbang’s Bid For Starwood

Photo courtesy: Hennem

It’s been two years since the Anbang Insurance Group came out of nowhere (well, out of China, actually), $1.95 billion in hand, to buy the Waldorf Astoria.

That was obviously just a first step for Anbang into the U.S. hotel market. Step two was its agreement to acquire Strategic Hotels and Resorts from the Blackstone Group in a deal valued at $6.5 billion. That will give Anbang ownership of 17 of the most noted hotels in the United States, including the Hotel del Coronado in San Diego; several Ritz-Carltons in California; the Fairmont Scottsdale in Arizona; the Four Seasons Resort in Jackson Hole; the Fairmont and Intercontinental hotels in Chicago; and the JW Marriott Essex House in Manhattan.

For step three, it’s elbowed its way into what seemed like a done deal between Marriott International and Starwood Hotels & Resorts—with an unsolicited bid of $12.8 billion, $2 billion more than Marriott offered—to acquire the Westin, W, and Sheraton brands. It also bought a U.S. insurance company, Fidelity & Guaranty Life Insurance, for nearly $1.6 billion, and a controlling stake in a South Korean life insurer.

The industry reacts
“It’s going to be very interesting to see what the shareholders decide—do they take the big money from the Chinese or take the long-term return with Marriott?” mused meeting professional Joan Eisenstodt, owner of Eisenstodt & Associates in Washington DC and a frequent expert witness in cases involving the hospitality industry. But she also expressed privacy concerns over having so many five-star properties, which host so many high-level internal meetings, owned by the Chinese.

Still, she acknowledged, “most people don’t care; 99% of the hotel contracts I see don’t even mention who the owner of the property is. People don’t even know enough to ask. If they go to a Hilton they assume it’s owned by Hilton.”

But should they care? Will it make a difference for travel agents if they are dealing with a Chinese insurance company rather Blackstone?

Chandre Casey, owner of I WANT TO TRAVEL in Wading River, NY, is unfazed. “It’s something we don’t have any control over,” she said. “As long as they keep the commission structure and do the right thing in supporting agents—as long as agents don’t suffer in the change—it doesn’t matter to me.”

“I don’t think it will affect my business,” agreed Colleen Gillette, owner of New Paltz Travel in New Paltz, NY—but she also mentioned concerns over security. “One thing people, especially political people, have to think about I think is security,” she said. “Will they sweep the rooms now? And what are the national security implications?”

On a personal level, having a Chinese insurance company as an owner might be a good thing. “The company itself does not have a lot of hotel experience, so I think they’ll want to keep [Starwood’s] people in place,” she noted. “It’s a big money deal, so we have to think about the long-term view, from an economic standpoint. But, is it going to change how we do business? No.”

Indeed, Eisenstodt said, the industry has concerns about Marriott buying Starwood, as well. “First, there is a concern about monopolies in many cities. Then, those who work on commission have concerns, because evidently Marriott is a stickler for IATA numbers and Starwood hasn't been. And finally, there is concern about our sales and services colleagues, for their jobs (will GSOs be consolidated even more?), their responsibilities, and their culture.”

But Paul Ruden, who recently retired from the position of legal counsel for ASTA, had fewer qualms about a Chinese takeover. “The Chinese already own a lot of hotels, and liability and contracts are controlled by state and city laws that govern lodging establishments,” he said. In the global travel industry “all kinds of global ownership go on, and I don’t see any big issues.”

Indeed, he said, “what’s really interesting to me is the fact that the Chinese are so interested in our tourism business. They’re not buying a string of properties that has a cool brand name; this is a very big acquitision. They must believe Starwood is going to be a very successful player going forward. Or perhaps it’s a defensive move, to keep Marriott from becoming any bigger.”

“The fact is this is a new wrinkle in the industry,” Eisenstodt acknowledged. “We really just don’t know what it will mean.”

On the horizon
Starwood said on Monday that it has received a waiver from Marriott to engage in discussions with Anbang, and that it will carefully consider which course of action is in the “best interest of Starwood and its stockholders.”

Shareholders of Starwood and Marriott are set to vote on whether to approve their merger on March 28. That would create the world’s largest hotel company, with more than 5,500 owned or franchised hotels and 1.1 million rooms around the world.

If Starwood backs out of that deal, it will owe Marriott a termination fee of $400 million.

With additional reporting by Jessica Montevago