Palm trees stand in front of the Marina Del Rey Marriott hotel in Marina Del Rey, California, U.S., on Monday, March 21, 2016.Patrick T. Fallon/Bloomberg
When Marriott International Inc. reached a friendly deal to acquire rival Starwood Hotels & Resorts Worldwide Inc. last November for $12.2-billion (U.S.), most analysts assumed that the only hurdles on the way to creating the world's largest hotel operator might come from regulators in certain markets.
But then along came Anbang Insurance Group Co., an unheralded Chinese company on a global buying spree.
Suddenly, Starwood shareholders were facing the gleeful prospect of a full-fledged bidding war for the owner of such prized brands as Sheraton, Westin, Le Méridien, St. Regis and W Hotels.
An Anbang-led consortium entered the fray on March 18 with an all-cash offer that topped Marriott's mostly stock deal. So Marriott had to dive a little deeper into its war chest, boosting the total package to $13.6-billion.
Marriott undoubtedly thought that jacking up its bid – and throwing in a bigger wad of cash – would drive the Chinese insurer and its private equity partners out of the game. Or at least persuade Starwood investors that holding shares in the combined company represented a better long-term bet.
After all, it stood to reap benefits from economies of scale and global market clout that the Anbang crew could not possibly match.
But Marriott's deal-making logic did not take into account a pressing Chinese need to diversify outside their domestic market, which has seen them spread far beyond their well-known interest in foreign resource producers. Their strategic hunt includes manufacturers of materials, semiconductors, insurers, banks, iconic hotels, travel operators and high-profile office towers in London, New York and Toronto.
On Monday, the Anbang group topped Marriott's latest offer with a bid of $82.75 per share, nearly $7 higher and all in cash. Another hike by Marriott could run into opposition from its own shareholders. Anbang may be stopped only in the unlikely event that a U.S. foreign investment watchdog panel decides the purchase of the U.S. lodging company would pose a threat to national security.
If the Chinese binge sounds vaguely familiar, it should. Japanese acquisitors followed a similar path in the late 1980s, using a strong yen to acquire such iconic properties as the Rockefeller Center, Columbia Pictures, the Pebble Beach golf course and some of the most expensive art ever auctioned. Much of it was sold off at a steep loss in the wake of the Japanese property crash, including the Westin hotel chain.
Chinese buyers do not benefit from a strong currency, but they have been encouraged to shop abroad since restrictions on overseas direct investments were eased in 2012.
No one personifies this trend better than Wu Xiaohui, who founded Anbang in 2004 as an auto insurer with no more than about $60-million (U.S.) in capital and close connections to influential people and important state-run business groups – the usual road to riches in Communist China. The company branched into the lucrative domestic life insurance market in 2010. But by 2013, it held a mere 0.1-per-cent market share.
Last November, Anbang forked out about $1.6-billion in cash for a U.S. life insurer and has also snapped up banks and insurers in Belgium and South Korea and several commercial properties, including the HSBC building in Toronto's financial district.
Its biggest hotel acquisitions: New York's landmark Waldorf Astoria, for a mere $1.95-billion, and, in its latest coup, 16 luxury U.S. hotels and resorts, including a Four Seasons in Jackson Hole, Wyo., and the Essex House in New York, for $6.5-billion.
Mr. Wu, a onetime bureaucrat who has apparently never granted an interview even with the tame domestic press, happens to be married to the granddaughter of Deng Xiaoping, architect of the modern Chinese economy, and his backers include state-owned energy powerhouse China Petroleum & Chemical Corp.
His rapid ascent has seen him labelled the Warren Buffett of China, for his similar use of stable insurance income to build a diversified empire, while supposedly being careful not to overpay for assets.
But that could change with the $14-billion Starwood deal, which appears designed to take advantage of the huge Chinese tourism boom. It also fits nicely with Beijing's strategy of building up the domestic service economy and creating homegrown heavyweights able to compete against powerful foreign financial groups.
Mr. Buffett's deals have to make sense to his investors. Mr. Wu's main concern is keeping his powerful allies happy.