In the weeks since Marriott International and Starwood Hotels & Resorts Worldwide agreed to give Chinese regulatory agencies up to 60 more days to review Marriott’s acquisition of Starwood, plenty of rumors have taken flight to explain the holdup.
You have no doubt read those rumors all over the place. Probably not a lot of them here, because we have a strict policy at Hotel News Now that prevents us from quoting anonymous sources in our bylined stories, and when it comes to this topic, a lot of sources seem to prefer to stay on background.
To me, that means that most of the conjecture around the holdup is just that—conjecture. Any time business deals involve the communist Chinese government, there’s not a whole lot else we can go on. It’s not like the Chinese Ministry of Commerce is issuing regular news releases updating the global real estate community on the progress of the deal.
So instead, we look at past behaviors and trends when it comes to how this government usually approaches deals like this, and we overlay what we know about overall Chinese sentiment toward U.S. hotel investment, and some patterns emerge. Let’s look at two of the big theories seeking to explain the holdup.
There’s the idea that the Chinese government is holding out for “first dibs,” if you will, on some of the Starwood-owned assets involved in the acquisition. Holding out for concessions is nothing new for China, and this theory is plausible to me because we know that trophy assets are a big part of the acquisition strategy for many big-name Chinese investors. This is a given. The most obvious example here of course is Anbang Insurance Group, which made headlines not only for its unsuccessful bid to acquire Starwood itself, but also for its pending purchase of Strategic Hotels & Resorts, its previous purchase of New York’s Waldorf Astoria and its stated interest in hotel real estate.
I won’t be surprised if we see some of Starwood’s remaining assets go to Chinese buyers as the deal spins out, Anbang or otherwise.
Then this week we read about what I’m calling the “cold-feet” theory in The New York Post. We included it in our “5 Things to Know” on Monday, and you all couldn’t get enough of it—views of this article were through the roof. We included it because it did source a named consultant, though there was plenty of speculation from unnamed sources as well, essentially saying that Marriott executives have “growing unease” about integrating Starwood—its loyalty program, those pesky assets whose values may be dropping by the second, and so on—and they might be using this deal holdup in China as a way to wiggle out of the deal. The consultant sourced in this piece, Telsey Advisory Group managing director David Katz, said not gaining Chinese approval of the deal “would be a good emergency exit for Marriott if they wanted out of the deal.”
Please. This is an absolutely ridiculous theory. Absolutely ridiculous, in my opinion. This is not Marriott’s first rodeo. This company knows what it’s getting into and why it went after Starwood in the first place. Sure, there are assets to sell that Marriott doesn’t want to hold on to, there’s the huge job of integrating loyalty programs, brands and more, but that’s why Arne Sorenson makes the big bucks. He and his team can handle it.
So if we’re going to speculate about this deal and how it will eventually spin out where China is concerned, I’m more interested in looking at the bigger picture of how China’s hotel investment landscape is developing. For that, I’d like to point you to an article we published yesterday by our European reporter Terence Baker on the reach Chinese companies are making into owning the total booking journey for travelers.
It’s an interesting read on many levels, but a big takeaway for me is how Chinese companies with lodging interests, like Fosun, Jin Jiang International Hotels and HNA Tourism Group, are making big strides into Western hotel investment on all levels, such as buying trophy assets, buying companies outright, upping stakes to get a piece of another company, and/or buying parts of the booking journey.
In the article, Jileen Loo, director of international capital markets at business consultancy CBRE Hotels, said changes to Chinese regulations have liberalized Chinese insurance and financial entities, permitting them to directly invest in overseas real estate. She added this trend will only continue.
So when it comes to my take on these theories as to what’s causing the current deal holdup in China, I’ll say that I don’t think it’s a deal breaker. I think it’s a way for the Chinese government to do its best to negotiate value for itself as it continues its quest to become a global lodging presence.
Do you agree or disagree, or want to float a theory of your own? Leave a comment below, or you can email me at sricca@hotelnewsnow.com or find me on Twitter @HNN_Steph.
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