China’s biggest US acquisition ever could be on the way soon, as three mainland entities are said to have submitted proposals to acquire Starwood Hotels and Resorts Worldwide, with the New York Stock Exchange-listed company currently valued at nearly $12 billion.
Sovereign wealth fund China Investment Corporation (CIC), HNA – the parent company of Hainan Airlines, and Shanghai’s Jin Jiang Hotel Group are all said to have submitted proposals to the central government to bid on the American hospitality group, according to an account in the Wall Street Journal. However, Beijing is said to be selecting only one mainland champion to bid for the hotel company and its more than 1,200 properties globally.
Should one of the Chinese firms be successful in acquiring Starwood, the acquisition cost is likely to be well above Starwood’s current $12 billion market value, and would make the transaction the largest acquisition of a US company by a Chinese concern.
Tourism and hotel investments are in vogue with Chinese companies as mainlanders have begun travelling more frequently including to destinations in the US and Europe.
Competing to Be China’s Biggest Cross-Border Investor
The three entities competing for the right to bid on Starwood reflect the diversity of Chinese groups powering a wave of cross-border deals.
CIC, China’s largest sovereign wealth fund, is also the country’s biggest cross-border investor in real estate, having acquired more than $7.3 billion worth of assets outside of China since the beginning of 2012, according to Mingtiandi’s database of Chinese real estate investments.
While the fund has yet to make any direct property acquisitions in the US, it currently holds the record for the biggest Chinese acquisition of an American corporate entity, having paid $5.6 billion in 2007 for a 9.9 percent stake in investment bank Morgan Stanley.
During this year CIC has already been aggressively acquiring overseas assets, including buying an Australian commercial property portfolio from Morgan Stanley for $1.79 billion, picking up a set of European shopping malls for $1.44 billion, and acquiring a Tokyo office complex for $1.2 billion.
Jin Jiang, the state-owned hospitality group which owns and operates hotel chains across China, also has some experience in outbound acquisitions, as well as having some familiarity with Starwood. The Shanghai-based tourism conglomerate paid Starwood Capital, the private equity arm of the US group, a sum north of $1.49 billion last year to acquire French hotel chain Le Louvre.
Before the Le Louvre deal, Jin Jiang already owned more than 1,700 hotels in China and ten other countries.
HNA, which started as China’s first privately-run airline, has since expanded to its business into hotels, logistics and tourist attractions. The company became one of China’s earliest private investors to acquire a US property in 2012, when it bought the Cassa New York Hotel on 45th Street in Manhattan, and this year HNA acquired an office building in London which had been on the market for $331 million.
While Shanghai-listed HNA is considered a private company, government entities also control a significant number of its shares.
Starwood Struggling for Market Share
The potential sale of Starwood appears to makes sense both for the US hotelier, and for its Chinese suitors.
Starwood announced in April that it had hired investment bank Lazard to explore strategies that could include sale of the company, as it has been losing ground to rivals globally.
Since then, Starwood, which operates the Sheraton, Westin, St Regis and W brands globally, has been listening to bids from potential buyers, which are said to now number over one dozen.
In China, the government has been encouraging its cashed-up corporations to expand globally, as a way to make its biggest companies more competitive, and to find more effective approaches to investing the country’s foreign exchange reserves.
With more than 100 million Chinese travelling internationally last year, tourism and hospitality deals have become popular for Chinese investors both domestically and globally.
In addition to Jin Jiang and HNA’s acquisitions, China’s institutional investors have made a number of high profile hotel acquisition in the last eighteen months, led by Anbang Insurance’s $1.95 billion deal for New York’s Waldorf Astoria hotel last year.