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Anbang walking away from $14B Starwood deal

Anbang walks away from Starwood deal
Anbang walks away from Starwood takeover: DJ
Anbang withdraws $14B Starwood bid

A consortium led by China's Anbang Insurance Group will walk away from its proposed takeover of Starwood Hotels worth almost $14 billion, the group said in a statement Thursday.

Starwood shares fell about 4 percent in after-hours trading, and Marriott, which had competed against the consortium for Starwood, also saw its shares drop about 4 percent in after-hours action. In its official statement, the consortium cited "market considerations" as the reason it walked away from the table.

"We were attracted to the opportunity presented by Starwood because of its high-quality, leading global hotel brands, which met many of our acquisition criteria, including the ability to generate consistent, long-term returns over time," the consortium said. "However, due to various market considerations, the consortium has determined not to proceed further. We thank the Starwood board, management team and its advisors for their efforts and support throughout this process."

Anbang had fired the latest shot in the bidding war, offering $14 billion for Starwood against Marriott's $13.6 billion proposal. Just two days ago, David Loeb, a senior research analyst at Robert W. Baird, told CNBC he did not think Marriott would sweeten its offer, and Starwood shareholders likely preferred Anbang's all-cash deal.

Starwood did not immediately respond to a request for comment.

A Chinese security guard walks past the front desk at a branch of Anbang Insurance in Shanghai last December.
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Reuters reported, citing sources familiar with the matter, that Anbang had never followed through with its March 26 proposal to Starwood to make its offer binding. The company did not provide a reason to Starwood for walking away, Reuters reported.

In a statement Monday, Starwood said that its board had determined that the Anbang-led offer was "reasonably likely" to lead to a "superior proposal" to the proposed Marriott deal. Starwood said at the time that the Anbang proposal was nonbinding, but that the company and the consortium were "working to finalize the other terms of a binding proposal from the consortium, including definitive documentation."

The consortium also included J.C. Flowers & Co. and Primavera Capital.

Before Anbang made a play for Starwood earlier this month, most had expected the U.S.-based hotel firm to make good on its pending agreement with Marriott. When it was announced last year, the merger between the two companies was worth $12.2 billion.

Anbang Insurance in Shanghai, China.
Imaginechina via AP Images

Anbang has mounted an aggressive expansion into the U.S. hospitality industry, agreeing to buy Strategic Hotels & Resorts from Blackstone for $6.5 billion this month and concluding a deal last year to acquire New York's Waldorf Astoria for $1.95 billion.

American hotels, especially Starwood, are an appealing asset for Anbang because they can offer long-term cash flow and have strong brand recognition, people familiar with the company's strategy told CNBC earlier this month.

Some have criticized Anbang for being willing to pay too high a price for assets — especially those in the U.S. The explanation for this behavior may come in part in comments Anbang Chairman Wu Xiaohui made during a 2015 Harvard recruiting event.

"We must win the first battle and every battle thereafter as we are representing Chinese enterprises going global," Wu said, according to a transcript of the event.

Palm trees stand in front of the Marina Del Rey Marriott hotel in Marina Del Rey, California.
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But beyond the prestige of owning so-called "trophy" assets in the U.S., many have theorized that Anbang's offer was part of a larger trend of capital flight from China.

China's economy has slowed over the last few years, and some have even contended that its period of impressive growth may be over.

"Money increasingly wants to diversify out of China," Victor Shih, a professor at the University of California, San Diego, who specializes in China's finances, told CNBC recently. "These are domestic investors who had invested in China because that's where they got the highest return, but that's been driving the capital flight."