$12.8b hotel offer 'to boost market share'

The acquisition of US hotel chain operator Starwood by Chinese insurance conglomerate Anbang Insurance Group, if successful, will increase the hotel group's global market share and ensure the continuity of its operation and brand, analysts say.

A consortium led by Anbang has offered $12.8 billion (10.87 billion euros) in cash for the hotel operator, compared with an earlier offer by Marriott of $12.2 billion.

If completed, the transaction will be the largest acquisition by a Chinese company in the US, according to financial data provider Dealogic.

Analysts say the combination of Starwood's extensive global hotel chain network and the purchasing power of affluent Chinese tourists is likely to produce a successful deal.

"It will have a very positive impact on Starwood's global market share given the rapid growth of China's outbound tourism. Chinese tourists will naturally select hotel brands that are owned by the Chinese," says Michael Chin, executive chairman of WT Global Hospitality Investment Co, in Hong Kong.

A source close to the Chinese insurer says Anbang intends to ensure the stability of the management team without any layoffs. Anbang will also keep Starwood's headquarters in the US.

"This could be an attractive factor for Starwood because it is very likely that Marriott will implement substantial adjustments, including firing members of the management team in the overlapping business if it takes over Starwood," Chin says. "Anbang will also boost the advertising campaign for Starwood's hotels in China."

News of Anbang's bid for Starwood came just days after it agreed to acquire Strategic Hotels & Resorts Inc from US private equity firm Blackstone Group for $6.5 billion.

The Chinese conglomerate's latest mega merger deal underscores an overseas buying spree by cash-rich Chinese companies.

An insurance analyst at a global investment bank, who declined to be named, says it demonstrates Anbang's desire to diversify its investment portfolio and to hedge the potential risk of a weaker yuan.

"The deal is unlikely to place pressure on Anbang's capital position, as most of its liabilities are long term."

While it is unclear how Anbang will fund its cash offer, some analysts say forming a consortium with two private equity firms, JC Flowers & Co in the US and Primavera Capital Group in China, would help Anbang avoid domestic regulatory hurdles.

The Chinese insurance regulator stipulates that the outstanding value of overseas assets owned by a Chinese insurer cannot exceed 15 percent of its total assets of the previous year.

Analysts say uncertainties remain over how the deal will unfold. Margaret Taylor, a senior analyst at credit rating agency Moody's Investors Service, says, "There is a high risk that Marriott may ultimately choose to increase its offer.

"We believe Marriott views the acquisition of Starwood as important, as it would solidly position the combined company as the world's largest hotel chain and increase its brand and geographic diversification."

lixiang@chinadaily.com.cn

( China Daily Africa Weekly 03/18/2016 page29)