Anbang Insurance Group’s unsolicited $12.8 billion bid for Starwood Hotels & Resorts reflects the perception that luxury lodging demand will remain high in the foreseeable future and may force Marriott International to increase or alter its bid for Starwood, analysts say.

Starwood on Monday said it received the Anbang offer March 10 and received a waiver from Marriott to start discussions with the group the following day. That waiver expires at midnight on Thursday.

If Marriott increases its $12.2 billion bid by $200 million, it would equal Anbang’a $12.8 billion offer, accounting for the $400 million termination fee that Starwood would be required to pay Marriott if it chooses Anbang.

“We could see Marriott offer a modest increase to get this transaction done,” J.P. Morgan analyst Joseph Greff wrote in a March 14 note to clients. “We wouldn’t be surprised if, at the end of this process, Anbang ends up with Starwood’s owned assets and Marriott with Starwood’s management and franchise businesses, which would be a likely result in an initially cleaner pro forma asset-light company. We also would not be surprised if Marriott walks away if the consortium upwardly revises its offer and Marriott simply collects its $400 million breakup fee.”

Debt-ratings firm Fitch said Monday that it would revise ratings on Marriott downward to “stable” from “positive” if Starwood terminated the agreement or Marriott increased its bid by taking on debt to augment its stock-and-cash offer (about 97% of the offer is in Marriott stock and about 3% is in cash).

“The [Marriott-Starwood] combined company will have the largest high-quality, internationally recognized brand portfolio in the industry,” according to Fitch. “Acquiring Starwood will also enhance Marriott’s position in advanced emerging markets.”

China-based Anbang is aggressively pursuing Starwood for its high-end brands (St. Regis, W, Luxury Collection and Westin) as well as its real estate holdings. (As of Dec. 31, Starwood owned 32 hotels totaling about 12,000 rooms, or about 3% of its room count.)

Anbang made a big luxury purchase in February, acquiring the Waldorf Astoria New York for $1.95 billion. It also has agreed to acquire Strategic Hotels & Resorts, a company with 16 hotels in its portfolio, and all but one is a luxury property.

“We’re not building full-service hotels anymore, so you have to buy them,” said Jan Freitag, senior vice president of hotel research firm STR. “Anbang has already tipped their hand that they like trophy downtown properties.”

In a March 14 investors note, Barclays analyst Felicia Hendrix said, “Recent transactions appear to suggest that there remains a large foreign bid for certain U.S. lodging assets (both managed and franchise companies as well as owned hotel assets). This is likely positive for lodging stock valuations as a whole.”

If Anbang were to end up acquiring Starwood, it would avoid the branding glut that would be created by a Marriott buyout. Together, Starwood and Marriott would have 30 brands. While Marriott hasn’t said how its 19 brands and Starwood’s 11 would co-exist, Marriott CEO Arne Sorenson noted in November that Marriott’s Renaissance and Starwood’s Le Meridien brands competed “in a fairly near place” in the upper-upscale sector.

Such a glut may create conflicts of interests and issues with hotel owners, according to Mark Eble, regional vice president of research firm CBRE Hotels (formerly PKF Hospitality). Those issues would likely be avoided with an Anbang acquisition because Anbang doesn’t operate hotels.

“You can make a logical argument that Marriott, Courtyard and Residence Inn aren’t competitive,” said Eble. “How can you make the argument that Marriott, Sheraton and Westin aren’t competitive?”

Source: http://www.travelweekly.com/Travel-News/Hotel-News/Will-Marriott-increase-its-Starwood-offer/?t=head&cid=eltrMtgNews