Piecing Together Why Anbang Walked Away From Its $14B Starwood Bid

In a brief message last Thursday, China’s Anbang Insurance abandoned their $14 billion bid for Starwood Hotels and Resorts Worldwide, with the mainland acquisition machine and its deal partners saying only that “due to various market considerations, the Consortium has determined not to proceed further.”

The abrupt end to what, for Anbang, had been possibly a year-long pursuit of the US-based hospitality chain has led to a storm of instant analysis, but few verifiable facts about the Chinese company’s intentions.

In the days following Anbang’s retreat from its March 28th offer of $82.75 per share for the owner of hotel brands including Westin, Sheraton and the upscale W chain, theories have been extended that this could be the end of a Chinese cross-border investment wave that reached $30 billion in 2015.

However, the timing of Anbang’s retreat, and the nature of some high profile media investigations that immediately preceded it, suggest that the insurer’s withdrawal could reflect a sudden disinterest in public scrutiny by Anbang, and with it the potential sunset of trophy acquisitions by major Chinese players.

Anbang Consortium as Disciplined Investors

The only public comment from the buyer side regarding why Anbang and its consortium partners, Primavera Capital and boutique investment bank JC Flowers & Co, walked away from their non-binding offer from Starwood came late on Thursday from Primavera chief Fred Hu.

“While attracted to Starwood’s high-end global hotel portfolio, at the end of the day Anbang is a disciplined buyer,” Hu reportedly told Reuters.

Being a disciplined bettor in a poker game would be folding when your opponent raises you. Arguing that you are walking away from an acquisition because of your disciplined investment strategy is only a credible explanation when another party has made the latest bid. With Anbang and team’s $14 billion attempt to top Marriott only a few days old, this statement has failed to satisfy most analysts examining the aborted transaction.

Resistance From Chinese Regulators

Shortly after Starwood’s board on March 21st agreed to a $13.6 billion dollar cash and stock offer from Marriott, reports in the Chinese media indicated that mainland regulators might block further bids from Anbang, on the basis that the mammoth acquisition would push the portion of the insurance company’s assets invested in overseas holdings beyond the 15 percent limit set by China’s insurance watchdog.

This account of resistance from the China Insurance Regulatory Commission (CIRC), which sets rules for the mainland’s insurance firms, is now being cited as a reason why Anbang ultimately abandoned its pursuit of Starwood.

While a quick accounting of Anbang’s overseas acquisitions to date, versus a recent declaration of the company’s total assets would seem to show that the CIRC would have reason to clamp down on more mega-deals by Anbang (which only a week before its first Starwood offer was accepted, committed $6 billion to acquire Strategic Hotels & Resorts), the sequence of events once again discounts the importance of potential action by the CIRC.

The report of CIRC objections to Anbang’s Starwood deal first surfaced in the Chinese media on March 22nd, after Starwood had accepted Marriott’s March 21st offer – leaving Anbang the opportunity to gracefully leave the field and avoid any potential conflict with government regulators in China.

Despite the chance to avoid clashing with the CIRC, Anbang and its partners on March 26th lodged their $14 billion non-binding bid for Starwood, seemingly disregarding any potential objection from regulators.

International Media Probes Anbang Ownership

As the Starwood acquisition drama stretched to six bids – two bids by Marriott and four by Anbang – the takeover battle became front page news. In addition to the size of the deal, and speculation over who would triumph in the bidding war, the source and nature of Anbang’s financing for the Starwood deals, as well as for the $12 billion in other acquisitions that the 12-year-old insurer has made over the past two years, became fodder for investigations in leading news outlets.

With Anbang’s ownership and management reportedly linked to relatives of current and former senior officials, the ongoing battle for the internationally recognised hotel chain triggered investigative reports by the New York Times, the Wall Street Journal, the Financial Times and other media over the last two weeks.

On March 28th, the same day that Starwood announced that it had received Anbang’s $14 billion bid, the Wall Street Journal published a story documenting the lack of details about Anbang’s shareholders and demonstrating a number of gaps and inaccuracies in the company’s public records.

The Wall Street Journal investigation was followed on March 29th by an examination of Anbang’s ownership by the New York Times. The Times story tied the pools of cash which the insurer has poured into acquisitions, such as the $1.95 billion purchase of the Waldorf Astoria, to capital injections by 37 holding companies, at least two of which appear to be connected to relatives of chairman Wu Xiaohui’s wife, who is a grand-daughter of Deng Xiaoping.

These corporate shareholders quintupled Anbang’s capitalisation in 2014 compared to 2011, according to the Times story, by injecting billions of dollars of cash into the insurance firm.

The 1,200 word New York Times account – brief by the newspaper’s standards – was written by the same reporter who last year published an explosive investigation documenting ties between the families of senior mainland officials and billionaire property developer Dalian Wanda. That investigation led to the block of the New York Times website in China, and a cascade of follow up accounts in other media.

The Anbang consortium announced that they would be abandoning their pursuit of Starwood two days after the New York Times account was published and three days after the Wall Street Journal story.

Are Trophy Investments Good Deals?

Had it been completed, Anbang’s acquisition of Starwood would have been the largest-ever takeover of a US company by a Chinese buyer – doubling the $7 billion 2013 purchase of Smithfield Foods by Shuanghui International Holdings.

The demise of Starwood’s ambitions, however, appears to be tied to their high profile nature – and the peculiar nature of Anbang’s shareholding. During the first two month of 2016, Chinese companies already spent $55 billion acquiring foreign businesses and assets, according to Dealogic – nearly reaching 50 percent of 2015’s full year total, and suggesting that China is continuing its policy of encouraging domestic companies to invest globally.

Although significant at the time, the Smithfield Foods acquisition spent little time on the front pages. During 2015, Chinese insurers bought $2 billion worth of US warehouse assets within one month when China Life invested $1 billion into GLP’s American portfolio, and Ping An Insurance bought into a Denver-based developer’s platform in its own $1 billion deal. These transactions, while documented here on Mingtiandi, did not trigger investigations of the buyers’ shareholding by the New York Times.

Anbang, however, made a $1.95 billion deal for the Waldorf Astoria in its maiden overseas foray, seemingly seeking recognition as much as investment returns.

Such trophy deals for famous names will likely become less common as Chinese buyers become accustomed to working with an independent press which doesn’t answer to government censors, and Chinese investors and insurers continue to formalise their shareholding structures.